A resilient transformation

structure investment, though consumption will maintain a growth of more than 10 per cent.

The growth rate of exports might be lower than that in 2017, due to the big base and possible slowdown of overseas direct investment.

The policy of “prevention of financial risks” and “deleveraging” sets the tone of a tight balance of liquidity.

New rules on asset management will be released in 2018, making it possible that liquidity will become tight temporarily.

With that, and the central bank’s possible passive interest rate rise in 2018, market interest rates will remain volatile and are likely to go up at certain times. However, market interest rates are less likely to rise sharply, since the central bank’s money market operations have become more forward-looking and accurate, and the co-ordination of regulatory policies has been enhanced after the establishment of the Financial Stability and Development Committee.

Exchange rates of RMB against USD are expected to fluctuate within the range of 6.50-6.75 in 2018. This is due to the expectation that China’s economic stability will lay the foundation for RMB stability, and the possible negative impact on the United States’ economy and treasury in the short term because of the US exit from QE policy and the Trump administration’s tax reform. China reported a higher-thanexpected economic growth in 2017, thanks to the higher contribution of net exports.

GDP grew 6.9 per cent year-onyear, higher than most economists’ forecasts of 6.8 per cent, indicating visible economic recovery.

Judging from the three driving forces of the economic growth, stable consumption was the biggest contributor to GDP, accounting for 58.8 per cent; contribution of net exports to GDP rose from 6.8 per cent in 2016 to 9.1 per cent in 2017, becoming a critical factor for the higher-thanexpected economic growth.

Infrastructure investment played a role of stabilising growth — investment in infrastructure, real estate and manufacturing grew 14.9 per cent, 7.0 per cent and 4.8 per cent respectively in comparison with the previous year. In 2017, the new momentum of Chinese economy was experiencing a critical transformation from quantitative change to qualitative change. The value added in nine new economic industries — including energy saving and environmental protection, new-generation IT and information services and new materials — accounted for approximately onethird of GDP.

New business models have emerged in the information, rural, and green economies, including cross-border e-business, smart city and remote education and telemedicine. The value added in hightech and equipment manufacturing industries rose 13.4 per cent and 11.3 per cent year-on-year respectively. Liquidity was tight on the whole, and the mean of market interest rates went up. The amount of base currency kept dropping in 2017, but the central bank did not cut the reserve requirement ratio, indicating a clear policy orientation of the central bank to maintain a tight monetary balance. M2 (broad money) growth has been slowing since early 2017, with a balance of RMB167.7 trillion at the end of December, a year-on-year increase of 8.2 per cent and 3.1 percentage points lower than the growth of the previous year. The mean of market interest rates continuously went up while liquidity tended to be tight. The daily average interest rate of sevenday collateralised repurchase agreement in the interbank market rose from 2.55 per cent in 2016 to 3.35 per cent in 2017. RMB appreciated against USD, easing the pressure of capital outflow temporarily. In 2017, the central parity rate and spot rate of RMB against USD appreciated 6.2 per cent and 6.7 per cent respectively.

With the appreciation of RMB against USD, China’s pressure of outflow of funds declined. This was consistent with the data of foreign exchange reserves: as at the end of December, China’s foreign exchange reserves stood at USD$3.14 trillion, increasing month-by-month through the year. In 2017, the Consumer Price Index (CPI) grew 1.6 per cent year-on-year, with this growth fluctuating within a small band of 2 per cent since February.

The Producer Price Index (PPI) rose 4.9 per cent year-on-year, turning around a negative growth and maintaining its growth momentum since the beginning of 2017. However, it started to decline after reaching a peak of 7.4 per cent in March, due to the loss of momentum of raw material price hike caused by the decapacity policy.

The year-on-year growth rate of Purchasing Price Index of Raw Material, Fuel and Power exceeded that of PPI, but the difference between the growth rates tended to decrease in 2017, suggesting an improvement in the operating status of industrial enterprises. Gross profits of industrial enterprises grew 21.9 per cent from January to November 2017, up 12.5 per cent year-on-year. Bin Liu is deputy general manager ICBC New Zealand