Making quality growth a reality
2018-03-26, YANG HAN in Hong Kong

As China aims for high-quality growth, the rate of GDP expansion may stabilize at around 6.3 percent over the next three years, said a leading economist. 

“It is not a big problem (for China) to maintain (growth of) 6.3 percent in the short term,” said Zhu Baoliang, chief economist at China’s State Information Center. He said that personal income is growing slightly faster than GDP, which indicates a continuous increase of China’s consumption as well as an upgrade in its structure. 

According to the National Bureau of Statistics, China’s GDP grew 6.9 percent in 2017, while the nationwide per capita disposable income surged 9 percent, or an increase of 7.3 percent from the previous year after deducting price factors. 

“For the next two to three years, the prospect for the world’s economy is still good … which can create a favorable external environment for China, and also a good environment for China to stabilize domestic demand and impose reforms in the future,” said Zhu. 

He was speaking at the annual Credit Suisse Asian Investment Conference, on March 20, in Hong Kong. With the theme Disruption As Usual, the four-day event connected more than 3,500 high-profile delegates with influential thinkers and opinion leaders from around the world. 

Zhu expects China’s investment in real estate development to maintain a growth rate of around 5 percent, as huge demand is being generated by the 13 million people flocking to cities annually and the 170 million migrant workers still facing housing problems. “We need about 13 million to 14 million houses (per year within the next 10 years),” he said. 

Admitting that China’s economic growth largely relies on infrastructure, of which the average growth rate has been about 20 percent in the past few years, Zhu said the rapid development of infrastructure may have come to an end. 

“The investment in infrastructure is shifting from transportation (and) water conservancy to fields like municipal construction and sewage treatment.

“We think, for this year, a GDP of 6.5 percent would not be a problem, if the investment in infrastructure can drop to around 15 percent,” said Zhu.

Trade conflicts between China and the United States will not have a serious impact on China’s economy, Zhu said. US President Donald Trump signed off a plan on March 22 to impose tariffs on imports from China. While the memo posted on the White House website did not give a specific amount of the tariffs, Trump said “it could be about $60 billion”.

“Even if there will be a reduction of the $60 billion surplus, we estimate its impact to China’s economy will be about 0.2 percent,” said Zhu. 

Meanwhile, Zhu warned that cautious measures should be taken when dealing with the recessive debt of local governments, in case it brings volatility to infrastructure investment. To maintain 15 percent growth in infrastructure investment, he said there needs to be some “necessary infrastructure projects” and expanding the limit on bonds issued by local governments. 

According to Xinhua, the Government Work Report released on March 5 at the National People’s Congress — China’s top legislature — said that local governments can issue special bonds, the Chinese version of municipal bonds, up to 1.35 trillion yuan ($213 billion), or a 550 billion yuan increase from 2017.

To crack down on fast-growing local debt and prevent the risk of default, borrowing from local government financing vehicles — companies capitalized and owned by local governments to raise money for the construction of municipal infrastructure — has been forbidden since 2014 due to their high level of debt. But, “invisible” government guarantees can still regularly be seen in practice, Zhu noted.

Preventing major risks, targeted poverty alleviation and pollution control are the three main tasks raised during the Central Economic Work Conference held in December. Zhu said it is important to slow down the economic growth a little bit to release risks gradually, while encouraging private investment to unleash the vigor of corporates.

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