Slower growth ahead

Stabilizing economic development should be government’s priority, think tank report says

Economic growth is likely to hit a 25-year low this year, pushing government policy to focus on supply-side reforms.

China’s economic growth is likely to hit a 25-year low of 6.7 percent this year, pushing government policy to focus on supply-side reforms as slowing manufacturing and sluggish exports remain, a think tank report said on Tuesday.

Year-on-year GDP growth in 2015 may have reached 6.9 percent, the slowest since 1991, said the report from the Center for Forecasting Science under the Chinese Academy of Sciences.

Stabilizing economic growth should be the government’s priority this year, but stimulus of the three major driving forces— consumption, investment and export — or the demand side, will be less efficient as it is affected by manufacturing overcapacity and weak global demand, the report said.

Government policy should focus on supply-side reforms, especially tax cuts and further reduction sin financing costs for companies, said Chen Xikang, a professor at the Academy of Mathematics and Systems Science under the CAS.

According to the report, the strongest support for economic growth will be domestic consumption, which will contribute 4 percentage points, compared with 2.6 percentage points from investment and 0.1 percentage points from exports.

It forecast a 10.5 percent year-on-year growth in retail sales this year, down from an estimated 10.7 percent growth in 2015. Fixed-asset investment will remain stable at around 10 percent. Exports, meanwhile, are likely to rebound to 3.9 percent growth.

The Consumer Price Index, a main gauge of inflation, is likely to rise to 1.8 percent this year, up from about 1.5 percent in 2015, according to the report.

The forecast was published two weeks before the National Statistics Bureau is to release the 2015 GDP growth and other major economic indicators.

Li Xuesong, deputy director of the Quantitative and Technical Economics Institution at the Chinese Academy of Social Sciences, said that deflation will remain a threat to the country’s economic growth.

Louis Kuijs, head of the Asia economics department at Oxford Economics, wrote in a research note: “China’s expected supply-side reform ... will be about producing the goods and services that more consumers want, and supporting investment in services and new industries.”