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September 27, 2017

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ADB keeps China growth forecast

THE Asian Development Bank yesterday projected China’s growth to be 6.7 percent for this year and 6.4 percent for 2018, both unchanged from its July estimates.

In an update of the Asian Development Outlook 2017, its flagship annual economic publication, ADB said better-than-expected external demand, proactive fiscal policy and strong domestic consumption have combined to drive up China’s growth.

“The Chinese economy remains resilient, solidifying its role as an engine of global growth,” Yasuyuki Sawada, ADB chief economist, said in a statement released after the update.

Noting China’s supply-side reform is moving forward, Sawada said eventual success hinges on a careful balancing of the role of the market and the state, particularly as the country continues its transition to a more market and service-driven economy.

China’s economy grew 6.9 percent for the first half of 2017, with consumption and services, together with new innovation-driven sectors, playing larger roles in the economy.

For the rest of 2017, the ADB predicted that consumption will remain the main growth driver of the economy as incomes rise and consumer confidence strengthens.

Net exports, which have contributed to China’s growth so far, would not continue to contribute in 2018, when imports are again expected to exceed exports. Investment, meanwhile, will continue its downward trend due to structural and cyclical factors, including an uncertain business outlook for export-oriented industries and remaining industrial excess capacity, the update said.

The ADB also expects China’s ongoing monetary and financial policies to remain unchanged, adding that government commitment to exchange rate liberalization may result in further widening of the trading band for the yuan.

On the risk side, the report noted that further regulatory tightening may cause liquidity shortages and put pressure on weaker financial institutions.

Other downside risks include impacts of global trade protectionism and renewed large capital outflows triggered by US interest rate rises and resulting dollar strength.

The optimism on China’s economy followed S&P Global Ratings’ downgrade of the country’s sovereign credit rating. Last Thursday, S&P lowered China’s long-term sovereign credit rating to A+ from AA-, because a “prolonged period of strong credit growth has increased its economic and financial risks.”

The Ministry of Finance called the decision “perplexing” and wrong. The ministry said the decision ignored China’s financing structure, the wealth-creating effect of government spending and its support for growth, as well as its economic fundamentals and development potential.


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