Despite slowing growth amid reform, China remains engine of global economy
China’s economy is no longer growing at the dazzling speed it used to, but it could offer global investors far better opportunities as it focuses on restructuring and defusing possible threats to sustainability.
After a rebound in the first two quarters of this year, key indicators, including industrial output, investment, retail sales and new loans, all grew less than forecast in July, sending jitters across the world markets.
The anxiety is understandable, given the role China has played in the world economy – contributing to one- third of global growth – any faltering will ripple throughout the world.
Yet it would be hasty and short- sighted to overreact to the softer momentum.
Looking deeper, one should be clear that a desired transition is underway – the economy is shifting from high- speed growth to medium- high pace growth, while optimizing structure and changing the growth model from the unsus- tainable export- and investment- driven model to one that draws strength from consumption, the service sector and innovation.
Consumption, which contributed to 63.4 percent of the first- half economic growth, expanded 10.4 percent in H1, accelerating marginally from the same period of 2016 and the first quarter this year.
Continuously expanding domestic demand will become an increasingly important source of export- led growth for China’s major trade partners, provided that those countries grant open access to the growing Chinese markets.
The service sector, already accounting for 54.1 percent of the economy, maintained strong growth in H1. High- tech and equipment manufacturing industries expanded faster than the overall industrial output.
Instead of erecting trade and investment barriers, China has been striving to open up wider, which means global investors could have more opportunities in the market even as its growth slows. In the latest move, China announced recently a series of measures to attract foreign investment, including easier access and better protection of intellectual property rights.
Sure growth will linger in the export and investment track, at least for the near future.
Restructuring will continue at pace, but it takes time for the new economic drivers to take up the slack from the weakening old ones.
Despite the restructuring pains, the economy is also under stress from ongoing campaigns – ranging from cutting excess capacity and containing leverage and asset bubbles to shutting polluting factories, as the government attempts to sacrifice short- term growth for longerterm development.
The challenge lies in striking a balance between stabilizing growth and advancing in these fronts, which the gov- ernment has been managing well.
Although growth may slow in H2, the slowdown will be gradual and will not threaten China’s ability to fulfill the 2017 target of around 6.5 percent. Even if an extreme case occurs, policymakers have ample room to boost activity and avoid a drastic decline.
Expressing their confidence in the economy, international financial heavyweights have raised their forecasts for China’s growth.
As the global recovery continues to move in fits and starts, a more sustainable, albeit slower growth assures China will remain the world’s major economic engine.