Experts confident China economy’s historic transitions manageable
Print Edition
CHINA’S economy is going through a series of historic transitions and recent short-term market volatility will prove temporary, said experts attending the World Economic Forum Annual Meeting 2016 in Davos, Switzerland.
The Chinese government is implementing wrenching reforms trying to shift its growth from investment and manufacturing to services and consumption. Experts warned the uncertainty during the process will lead to periodic market disruptions.
China witnessed a turbulent year in 2015. Growth in the world’s second-largest economy hit a quarter-century low of 6.9 percent, compared with 7.3 percent a year earlier.
“We see the transitions as manageable,” said Christine Lagarde, managing director of the International Monetary Fund, stressing calm in the face of recent volatility.
“There needs to be acceptance that there will be a certain degree of volatility; this is entirely compatible with market-driven principles,” she said.
The IMF said it expected China’s economy, a major contributor to global growth, to increase by 6.3 percent in 2016.
“Indeed, China is going through a cyclical adjustment,” said Ray Dalio, chairman and chief investment officer of US-based Bridgewater Associates.
“The reforms and leadership in China are fundamentally very good. What we are dealing with should be short-term challenges,” said Dalio.
“This may last two to three years,” he said.
“The future of China is vibrant and young, and any volatility is global and linked to monetary policy.”
Jiang Jianqing, chairman of the board at the Industrial and Commercial Bank of China, said: “China has reached the point of no return — the country needs to deepen reforms to avoid the middle-income trap.”
“We can no longer depend on investment; we need to rely on innovation and economic reforms to deliver the next wave of economic growth,” he explained.
Gary D. Cohn, president and COO of Goldman Sachs, said: “It is a difficult transition for any country. The shift from a capex to an opex economy means that the government has less control of economic growth.”
Despite criticism, China is making strong progress as domestic consumption has powered from 49 percent of GDP five years ago to 52.5 percent now.
“China is in the midst of a major transition, and in the process a lot of assets will be revalued,” said Fang Xinghai, director-general of International Economic Department at the Office of China’s Central Leading Group for Financial and Economic Affairs.
He said a combination of Chinese and global factors had caused recent volatility, referring to the interest rate rise by the US Federal Reserve and the poor performance of emerging markets.
Government service and public service still carry very high esteem in China. The market is complex and sometimes China doesn’t deal with this sophistication as well as it could, Fang explained. “But we’ll learn,” he added, as the reform strategy is on track.
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