Rise in deficit spend­ing, sta­ble growth fore­cast for 2017

China Daily (Hong Kong) - - TOP NEWS - By DUAN TING in Hong Kong tingduan@chi­nadai­lyhk.com

The Chi­nese gov­ern­ment is ex­pected to in­crease deficit spend­ing in 2017 to cope with eco­nomic head­winds and keep GDP growth at a sta­ble 6.5 per­cent, mar­ket an­a­lysts said.

The growth rate fore­cast and as­sur­ance that no eco­nomic hard land­ing will oc­cur were re­leased on Mon­day in a book from a top think tank. It also fore­cast that con­sumer in­fla­tion will rise mod­er­ately to 2.2 per­cent, ac­cord­ing to the Chi­nese Academy of So­cial Sci­ences.

The fore­casts came af­ter the tone-set­ting Cen­tral Eco­nomic Work Con­fer­ence, held on Thurs­day in Bei­jing, sug­gested that China also will deepen struc­tural re­form on the sup­ply side, and the gov­ern­ment will tend to main­tain an ex­pan­sion­ist fis­cal pol­icy and mod­er­ate mon­e­tary pol­icy next year.

Govern­ments typ­i­cally use spend­ing as part of their fis­cal pol­icy to stim­u­late economies. Mon­e­tary pol­icy of­ten in­volves use of in­ter­est rates to stim­u­late or rein in an econ­omy.

Zhao Yang, chief China economist at No­mura In­ter­na­tional (Hong Kong) Ltd, said a 6.5 per­cent GDP growth rate next year would be within the mar­ket’s ex­pec­ta­tions and also ad­e­quate for reach­ing the gov­ern­ment’s goal of dou­bling the 2010 GDP and peo­ple’s in­comes by 2020.

No­mura ex­pects re­ported GDP growth to mod­er­ate in 2017 to 6.5 per­cent and in 2018 to 6.2 per­cent from an es­ti­mated 6.7 per­cent in 2016.

Zhao said the gov­ern­ment will need to use deficit spend­ing to boost in­fra­struc­ture in­vest­ment and fis­cal ex­pan- sion. That would be im­ple­mented through rel­a­tively large bud­get deficits, es­ti­mated at 3.5 to 4 per­cent of GDP, and more quasi-fis­cal sup­ports. Such sup­ports could in­volve fi­nanc­ing by the big, Sta­te­owned “pol­icy” banks and pub­lic-pri­vate part­ner­ships to sup­port in­fra­struc­ture projects, as well as greater lo­cal gov­ern­ment bond is­suance.

“The gov­ern­ment still has enough am­mu­ni­tion to stim­u­late in­vest­ment growth, although such mea­sures will lead to a poorer qual­ity of growth,” Zhao said.

The econ­omy’s soft land­ing and mildly higher in­fla­tion in 2017 will be the re­sult of a fis­cal stim­u­lus and de­layed ef­fects of yuan de­pre­ci­a­tion, Zhao said.

Stan­dard Char­tered ex­pects po­lit­i­cal, eco­nomic and so­cial sta­bil­ity to be given high pri­or­ity and the gov­ern­ment to set a growth tar­get within the range of 6.5 to 7.0 per­cent for 2017.

Ding Shuang, head of Greater China Eco­nomic Re­search at Stan­dard Char­tered Bank (HK) Ltd, pointed out that as lever­ag­ing rises, there could be an in­crease in risks, though that is dif­fi­cult to pre­dict. Ding also said ad­di­tional con­cerns in­clude some cool­ing in the prop­erty mar­ket next year, a con­tin­u­a­tion of cap­i­tal out­flow risk, and the un­cer­tain­ties pre­sented by the poli­cies of US pres­i­dent-elect Don­ald Trump.

Many in­sti­tu­tions ex­pect at most one re­serve re­quire­ment ra­tio cut for banks but no in­ter­est rate cuts in 2017.

The gov­ern­ment still has enough am­mu­ni­tion to stim­u­late in­vest­ment growth.” Zhao Yang, chief China economist at No­mura In­ter­na­tional (Hong Kong) Ltd

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