Slowing China growth inevitable
About three years ago, Chinese President Xi Jinping began talking about the need for China to adjust to a ‘‘new normal’’ of slower-paced economic growth.
It was a message intended to manage expectations.
Given the challenges around reforms within China, it was sensible.
But this rings alarm bells for multinational corporations in China and for countries that trade with China. It creates uncertainties, and may give cause for adjustments.
The expected growth rate (based on GDP) of the Chinese economy was forecast to be 6.5 per cent for 2017.
Yet the first half of 2017 saw China grow at 6.9 per cent. If this trend continues, the growth rate will actually be faster than last year’s 6.7 per cent.
And it’s not just GDP growth that is showing positive signs; industrial output and retail sales also rose in the first half of this year.
The overall positive picture of the Chinese economy prompted the IMF to revise its growth forecast up to 6.7 per cent for 2017 and 6.4 per cent for 2018. This is the second adjustment it has made regarding the second-largest economy in the world.
More recently, the OECD also upped its forecast from 6.6 per cent to 6.8 per cent.
The Asian Development Bank’s forecast for the Chinese economy was similar to the IMF’s.
There are indeed positive signs emerging from the ongoing reforms of the Chinese economy.
For example, the shift towards a consumption-driven economy is making some headway. Consumption contributed 63 per cent of real GDP growth in the first half of 2017, up from the historical value of 55 per cent.
Chinese banks dealt with 8.6 billion payments via mobile services in the second quarter of 2017 alone, a 40.5 per cent increase from a year ago.
Chinese online shoppers spent a record US$25 billion (NZ$36b) on the ‘‘Singles’ Day’’ online shopping festival.
Despite this, in the aftermath of the 19th National Congress of the Communist Party of China, China has indicated that growth is to slow down to accommodate quality and stability.
Previously, China has set the target of doubling its real GDP from 2010 to 2020. While this target will remain, China is unlikely to set further targets beyond 2021.
The focus will be on generating a stronger economic foundation by pushing for supply-side structural reforms, promoting employment and reducing poverty, and strengthening environmental protection amongst others.
A slowdown for a large economy such as China is inevitable.
With an economy coming up to US$12 trillion, it is hard to envisage that the economy should grow this fast.
The balancing act across provinces is another factor that China needs to account for.
A large part of China’s growth still comes from the usual suspects: Shanghai, Guangdong, Beijing, Tianjin and Chongqing, to name a few. Other provinces and cities, while growing fast, do not come close to the growth rates of the leaders.
The gaps are likely to widen without a proper recalibration of the sub-economies within the country.
So, don’t expect China to continue to grow as fast. With rising competition, attracting the attention of the increasingly sophisticated middle-income group also gets tough.
6.8 per cent is just a number, as is 6.5 per cent, or 6.2 per cent for that matter. There’s no reward for China for maintaining that growth at all costs.
And there’s not much that the rest of the world should be worried about when China does need to slow down. A stable, growing China is healthy for the global economy in the mid to long term. ❚ Siah Hwee Ang is the BNZ chair in business in Asia and also chairs the enabling our Asia-Pacific trading nation distinctiveness theme at Victoria University.