China needs to watch out for economic headwinds
World Bank predicts GDP growth of 6.8% for 2017, but warns of future 'macroeconomic vulnerabilities'
China faces a period of slower growth next year after the World Bank revealed that GDP came in at 6.9% in the first three quarters of 2017.
This comes at a time when Beijing is realigning its economy towards a more consumer-driven and innovative model, while clamping down on excessive overseas investments. On Monday, China’s Central Economic Work Conference opened.
Top of the agenda for government leaders was to review the country’s economic performance in the past 12 months and draw up plans for 2018. “China has maintained its growth resilience and gained reform momentum,” John Litwack, the World Bank’s main economist for China, said on Tuesday.
“The authorities have undertaken a host of policy and regulatory measures aimed at reducing macroeconomic imbalances,” he added after the bank predicted a GDP growth rate of 6.8% for 2017, which is slighter higher than the previous forecast.
But next year that figure is likely to slow to 6.4%, the bank revealed when releasing its latest China economic update. In 2019, GDP growth could drop even even further to 6.3%.
Those numbers tend to reflect signals from within China’s administration and the views expressed by President Xi Jinping that growth will take a backseat to other concerns such as financial and social reforms.
In November, Xi downplayed its importance at the highly influential Communist Party National Congress in Beijing.
“Favorable economic conditions make it a particularly opportune time to further reduce macroeconomic vulnerabilities and pursue reforms that target ‘better quality, more efficient, fairer, and more sustainable development’, as emphasized by President Xi,” said Elitza Mileva, senior economist at the World Bank and co-author of the report.
Still, the bank warned that as China accelerates deleveraging, it is likely to stunt growth in the near term. It also pointed out that despite recent improvements in the global economic environment, there are also external risks to the country’s outlook.
They largely stem from the threat of more restrictive trade policies in advanced countries and increased geopolitical tensions.
“Prudent monetary policy, stricter financial sector regulation, and the government’s continuing efforts to restructure the economy and to rein in the pace of leveraging are expected to contribute to the growth moderation,” the bank said.
China is already tightening its grip on outbound investment risks with a code of conduct for state-owned enterprises, according to the influential government-owned China Daily newspaper.
While exact details have yet to be released, the overall regulatory framework will be similar to the one targeting private companies issued on Monday. At the heart of this policy document is the decision to curb businesses from pursuing high-leverage fundraising in overseas countries.
“Some external challenges, such as interest rate hikes in the United States, may pose higher financial risks for overseas investments in the near future,” Tu Xinquan, a professor at the University of International Business and Economics, told China Daily.