Implementing reform key to sustaining growth amid downward pressure
China’s economy managed to end the third quarter on steady footing, but for strength to remain, the country needs to follow through on the wide- ranging reforms it has planned.
Official data on Wednesday showed China’s economy grew 6.7 percent in the third quarter, holding steady from the second quarter and putting the government on track to hit the fullyear target of between 6.5 and 7 percent.
The results once again dispelled worries of a hard landing for the world’s second- largest economy, bringing relief for China and the rest of the world. With encouraging trends taking shape, China’s growth has huge potential for more pleasant surprises.
Among the bright spots, the service industry accounted for 52.8 percent of GDP in the first three quarters, up 1.6 percentage points from the same period last year.
Consumption is assuming a more conspicuous role in growth, accounting for 71 percent of GDP growth in the first three quarters, evidence that China’s efforts to shift away from investment- and trade- led growth are bearing fruit.
In a sign of improving domestic demand, China’s producer prices rose in September for the first time in nearly five years, a broad positive for an economy struggling to tackle high corporate debt.
That being said, China’s growth outlook still has multiple unknowns that will put policymakers to the test.
In addition to uncertainties in external markets such as Britain and the US, the property sector, which has proved to be a significant growth driver so far this year, remains a major concern.
Over the weeklong National Day holiday, dozens of Chinese cities announced property curb policies due to fears of asset bubbles. This raised concerns about whether the policy move would weigh on the broader economy if other drivers fail to pick up the slack.
Investment growth by private firms, which regularly contribute more than 60 percent of China’s GDP growth and provide over 80 percent of jobs, remained on the weak side.
In the first nine months, fixed asset investment by private companies increased 2.5 percent year on year, in contrast to the 21.1 percent growth by State firms.
In addition, high corporate debt in China has been a major threat to companies’ profitability and to broader financial stability. The country’s total debt surged after the 2008 global financial crisis and its debtto- GDP ratio was reportedly around 250 percent by the end of 2015.
Aware of such problems, authorities have already outlined a slew of reform steps.
To stimulate private investment, the government has opened up more industries and tried to attract investors through public- private partnership ( PPP) projects.
On the debt front, the State Council earlier this month detailed a guideline on the long- discussed debt- for- equity swaps, pledging the scheme will be conducted in an “orderly” fashion as the country steps up efforts to tackle high corporate debt.
Other policies include cutting industrial overcapacity, overhauling State- owned enterprises ( SOEs) and reducing taxes to lower financial costs.
While the reform roadmap is becoming clearer, the next crucial step is its delivery, as progress may stutter and stumble due to insufficient implementation and conflict of interests.
But with downward pressure still looming large, authorities at all levels should bear in mind that the future course of China’s economy in years to come will be decided by how well reforms are implemented.