ADB raises economic growth forecast

Bank cites the strong service sector, fiscal expansion and export recovery

The Asian Development Bank (ADB) on Tuesday raised China’s growth forecast for 2017 and 2018, supported by the strong service sector, fiscal expansion and export recovery.

The bank now expects China’s economy to expand by 6.7 percent in 2017, up from a previous projection of 6.5 percent in April, and growth in 2018 is expected to reach 6.4 percent compared to 6.2 percent in its previous forecast.

Juergen Conrad, head of the economics unit at the ADB China Resident Mission, said some promising signs, such as the recovery of exports, appeared in the first half, which had not been anticipated in April.

China’s economy grew at a faster than expected rate of 6.9 percent in the first half.

Conrad said he expected the positive signs to continue to support growth in the coming months.

Consumption will remain the main driver of growth as incomes rise strongly and consumer confidence hits a record high.

Net exports will recover to contribute to economic growth this year but may decline in 2018 due to a weak recovery of global demand.

The revised forecast comes after some rating agencies lowered China’s rating.

S&P Global Ratings downgraded China’s sovereign credit rating earlier this month by one notch to AA-, in line with that of Moody’s.

Conrad said while financial risks do exist, as the rating companies mentioned, the short-term outlook for the Chinese economy remains promising.

“The government is doing a good job trying to contain risks in the financial sector, and has been trying to see a smooth transition amid the rebalancing process,” he said. “There is a general consensus across credit rating companies on efforts being made in progress.”

The National Financial Work Conference in July, which set policy for the coming five years, re-emphasized that corporate financing costs should be lowered.

The meeting also established a commission to better coordinate the activities of financial regulators and the central bank, the latter of which will play the leading role in maintaining financial sector stability.

Yin Jianfeng, chief economist with China CZ Bank, said the downgrade was somewhat “bizarre” when the Chinese economy is rebalancing its structure, moving away from past strong credit expansion.

Date from the Bank of International Settlements (BIS) showed China’s overall leverage ratio is growing at a slower pace.

China’s non-financial corporate leverage ratio declined for the third consecutive quarter to 165.3 percent in the first quarter this year, the BIS data showed.

The key challenge ahead for China is to complete the unfinished agenda of supply-side reform, mainly cutting overcapacity and deleveraging, the report said.

As recently launched mixed ownership reform pilot programs only offer limited experience for other companies, more far-reaching reforms are expected next year, according to Conrad.