What's Ahead for China’s Economy: Slight Rebound or Moderate Fall?
As 2018 begins, China is looking at a year that starts with a strong foundation, but will likely bring slower growth.
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Karen Liu and Steven Gu
Jan 25,2018,20:22

The total GDP of China was 82.71 trillion yuan(12.93 trillion dollars) in 2017, said China's National Bureau of Statistics on January 18th. With the help of government-dominated stimulus and an improving environment of international trade, this was the first time that China’s GDP reached the threshold of 80 trillion yuan.

China has also achieved its first rise in GDP growth since 2010. Its GDP increased by 6.9%, which was 0.2 percentage higher than that in 2016.

At the same time, other important macroeconomic data demonstrated a good shape. PPI (Producer Price Index) turned from negative to positive for the first time in the past 5 years. Price of coal, iron and steel rebounded slightly and export increased by 10.8% in 2017. There were a lot of job opportunities in Chinese cities in 2017 and the unemployment rate has dropped to the lowest point in recent 5 years.

About China


Estimated Figures

2017-12

2017Q4

2017

2018-1

2018Q1

2018

Economy   Growth & Trade







GDP(%)

-

6.8

6.9

-

6.7

6.6

Industrial value Added(%)

6.2

6.2

6.6

6.2

6.1

5.7

Investment   in Fixed Assets(%)

7.2

7.2

7.2

7.1

6.9

6.0

Nominal Consumption(%)

9.4

9.9

10.2

9.7

9.8

10.0

Export(%)

10.9

10.0

8.3

9.0

8.8

6.0

Import(%)

4.5

13.1

15.9

7.0

8.0

10.0

Trade Surplus($ billion)

54.7

133

430.7

56.6

71.1

383

Inflation   & Unemployment Rate







CPI(%)

1.8

1.8

1.6

1.5

2.7

2.3

PPI(%)

 

 

4.9

5.9

6.3

4.8

4.3

3.0

Unemployment Rate(%)

3.92

3.95

3.98

3.92

3.9

3.9

Money   & Credit







M2(%)

8.2

8.2

8.2

8.4

8.5

9.0

Deposit-reserve Ratio(%)

17.0

17.0

17.0

17.0

17.0

16.5

Data source: Wind Info. System

From the perspective of different industries, the primary industry increased by 6.54 trillion yuan(1.02 trillion dollars), an increase of 3.9%(prev. value 3.3%) over the previous year. The value added of secondary industry was 33.46 trillion yuan(5.23 trillion dollars), with a growth rate of 6.1%(prev. value 6.3%).The tertiary industry, also called the service sector, increased by 42.70 trillion yuan, that’s 6.7 trillion dollars, an increase of 8%(prev. value 7.7%).

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Data source: http://hibor.net/

Consider the contribution of their growth to China’s GDP. The primary industry in 2017 accounted for 0.3 percentage of GDP growth, which remained unchanged. The contribution of secondary industry to GDP growth was 2.4 percentage, 0.1 percentage lower compared with that in 2016. The tertiary industry accounted for 4.1 percentage of GDP growth, that’s an increase of 0.2 percentage. From the viewpoint of production method, the secondary industry, which consisted of traditional industry and construction industry, went downwards slightly in 2017, but the tertiary industry (service industry) met an accelerating growth and provided a strong support to the growth of China’s GDP.

In addition, although the growth of the secondary industry went downwards in 2017, the annual growth rate of industrial value added has increased significantly. So we can deduce that the growth of construction industry was hindered by the poor performance of real-estate industry and the growth of construction industry might have met a substantial decline.

From the demand side, consumption made up about 4.1 percentage of China’s GDP in 2017, slightly fell by 0.2 percentage compared with that in 2016. The contribution of total capital formation and net export to GDP growth was not released, but from the growth trend of fixed assets investment and the import and export, net export is probably the main marginal power of GDP growth in 2017. That can be verified by data from different quarters. There was a trend that the total capital formation was playing a declining contribution to GDP growth while the net export was showing an ever-strong driving force to that. Although the current export growth has already been at a high level, which means it was not expected to go up further with the high base, considering the import growth may meet more significant downward pressure in the future, it is anticipated that net export will remain its great contribution to GDP growth to make up the negative effect caused by downward pressure on total fixed investment growth.

Besides these quantitative results mentioned above, the common trend depicted by these results is also encouraging. The downward pressure on China's economy has lasted for several years and in 2017 it built a solid bottom line for the decline worry. Not only did it land, but it landed on the flat plateau. There are still a lot of advantages for China to move forward, as well as other cumulative development energy.

It is also worth mentioning that China’s economic downturn in the past few years was not an uncontrollable fall but an orderly and profound transformation and adjustment. China has gained momentum to improve its economic quality, to exclude the backward capacity and some fraud in key industries. This is a transition and it is not at the cost of the whole society. This is a harvest time for China of development as well as transformation. Obviously, it was not a period of stagnation.

To sum up, in 2017, China’s economy generally handed out a beautiful answer. But most factors of the economic recovery came from supply-side reform and an increase of industrial price, which might lead to the phenomenon that several monopolistic state-owned-enterprises enjoy the majority of the profits.If this problem remains outstanding, it is hard for China to maintain the sustainable economic growth.

It is expected that in 2018, China’s consumption will still remain stable. Investment in real estate industry and infrastructure will lower the overall growth of fixed investment (further influence total capital formation)and net export will still provide a positive force although China's positive export figures are the results of the global economy recovery. With the increase in economic volume and the rise of trade protectionism, analysts are not optimistic about China’s export growth in 2018. Its marginal contribution to GDP growth may also be weakened.

China’s economic growth still faces pressure in 2018. The current economic recovery has won a precious time for China’s supply-side structural reform. It is estimated that China will continue to promote its financial regulation in 2018 to lower the systematic risk in its financial institutions. China has stated to further improve the quality of its economic development, namely, high-quality growth. It also strives to improve both the quality and efficiency of its economic operation.

As mentioned above, in terms of the three key factors in economic growth, namely, investment, consumption and import and export, it is anticipated that China’s decline in economic growth in 2018 is an event with high probability. According to recent research reports released by Guoyuan Securities Co. LTD. and Pingan Securities, they all predict that China’s GDP growth in 2018 will go down slightly to around 6.5%.

 

Topics :China’s Economy: Slight Rebound, Moderate Fall?
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