03.09.2017
After a slowdown that lasted for six consecutive years, the Chinese economy, contrary to numerous forecasts of experts, continues to show slow but consistent growth in 2017.
First, GDP growth for the first half of the year exceeded even the most optimistic forecasts of economists. According to the latest published data, the growth of the Chinese economy in the second quarter of this year amounted to 6.9% and was higher than the indicator of the same period last year (which was 6.7%). Until recently, analysts expected that China’s growth this year would be about 6.5%, and in 2018 it would slow down even more-to 6%.
In June 2017, the IMF raised its forecast for China’s economic growth to 6.7% in 2017 and to 6.4% on average in 2018-2020. In April, the forecast was 6.6% and 6.2%, respectively. In January of this year, Credit Suisse called a possible slowdown in China’s GDP growth to 5% a “black swan” for the global economy. According to the draft plan of socio-economic development of China, in 2017, the country’s GDP growth rate should be within 6.5%.
Secondly, the official Beijing notes that the growth of the Chinese economy observed today is the result of pre-planned and implemented work.
As the head of the State Council of the People’s Republic of China Li Keqiang noted, in 2017 the Chinese government intends to continue reforming and structural transformation of the economy.
According to the State Statistical Office of the People’s Republic of China, in the first and second quarters of this year, the Chinese government “actively promoted the continuation of economic reforms,” and also paid ” great importance to the introduction of innovations, the growth of household incomes and the maintenance of economic stability.”
Today, the main tasks for the formation of new jobs have already been implemented (in particular, in the sectors of light industry, metallurgy, construction, etc.). According to official information, in the first six months of this year, the number of new jobs in cities and towns increased by 7 million 350 thousand (which is the early implementation of 66.8% of the annual employment goal).
In China, the incomes of the population are steadily growing and the middle class is increasing. Since the beginning of the 2000s, the share of the middle class in China has more than doubled and now exceeds 37% of the population. According to the Chinese Academy of Social Sciences, today in China the share of the population with an average income is 37.4% of the country’s population. Of these, 18.5% belong to the top of the wealthy Chinese, and 18.9% belong to the lower level of the middle class.
Third, the growth of the Chinese economy is mainly due to three factors: increased activity in the industrial sector, strengthening consumer demand and export growth.
Thus, the volume of industrial production in China in the first half of the year increased by 6.9%, significantly ahead of the most positive expectations of analysts (who predicted maximum growth at 6.3%).
The volume of investments in fixed assets of the People’s Republic of China, with the exception of agriculture, increased by 8.6% in the first six months of 2017 (amounted to about $ 4.15 trillion), which also turned out to be better than economists ‘ forecasts. In 2016, this indicator amounted to 8.1% ($8.68 trillion).
Nevertheless, in the last few years, China has seen a slowdown in the growth rate of investment in fixed assets. In 2011, the volume of investments increased by 31.8%, in 2012 – by 22%, in 2013-by 19.6%, in 2014 – by 15.7%, and in 2015 – by 10%.
According to the General Customs Administration of the People’s Republic of China, in the first six months of 2017, the volume of Chinese exports increased by 15%, while imports increased by 25.7% compared to the same period in 2016.
The growth in the volume of imports and exports was predicted in advance by analysts, but experts did not expect such high indicators. The increase in foreign trade turnover was caused by an increase in global demand for Chinese goods. By the end of May, China’s foreign trade turnover increased by more than 12% compared to the same indicator in 2016.
In turn, the volume of retail sales in China increased by 11% in January-June of this year and amounted to $ 2.55 trillion. At the same time, in the structure of retail sales, the volume of Internet sales increased by 33.4% over the specified period (to $ 459 billion).
According to the forecasts of the Chinese Academy of Social Sciences, in 2017, the volume of retail sales in China will increase by 9.5% to $ 5.27 trillion.
Fourth, in the context of an ambiguous situation in the global economy, China demonstrates good protection against potential economic risks.
The IMF’s forecasts regarding China’s national savings are indicative, according to which the indicator this year may reach 45% of GDP. This is especially important in combination with relatively acceptable, according to Chinese economists, government debt (sovereign debt of 49% of GDP and corporate debt of 170%).
In addition, the debt of the People’s Republic of China consists almost entirely of loans from state-owned banks to state-owned enterprises, which gives them a state guarantee. At the same time, the government’s fiscal position itself is relatively strong (besides, China’s foreign exchange reserves significantly exceed its foreign debts).
The state’s savings account for just under 50% of GDP. As a result, credit funds are available in excess, and the cost of attracting financing may be low. Now China has more opportunities than other countries to manage its debt.
Thus, according to published data, the volume of foreign exchange reserves of the People’s Republic of China at the end of June this year amounted to about 3 trillion. 56 billion $ 800 million (growth over 5 months).
At the same time, economists surveyed by Bloomberg expected an even more significant rise – up to $ 3.61 trillion. Today, Beijing has tightened capital controls to support the yuan and stop the spending of foreign exchange reserves (as the statistics of the People’s Bank of China show, the measures have had an effect).
CONCLUSIONS AND FORECASTS
1. The current growth rates of the Chinese economy were predictable and related to the implementation of structural reforms (involving a gradual transition from a model of economic development focused on expanding exports, strengthening state-owned enterprises and investing public funds in infrastructure projects, to a model that focuses on the expansion of domestic demand and services, and the development of the private sector).
2. In general, it is obvious that the Chinese economy is now in the process of an extraordinary structural transformation: the producer model based on industry is giving way to the consumer model based on the service sector, which is gaining strength. It is likely that in the current economic conditions, according to the results of the second half of 2017, China’s GDP growth may again slightly exceed the planned forecast targets.
3. Chinese economists continue to promote the idea of China entering a new level of economic development, which is characterized by greater diversification of production, a higher technological level, which in the future may lead to a reduction in the use of traditional energy resources. Such a scenario seems especially likely given the growing trend of active growth in the field of ecology, innovation and alternative energy sources (China is already the largest producer and consumer of solar panels, electric cars, etc.).
4. An important process in 2017 will be the adaptation of the yuan to exist in new conditions – on October 1, 2016, the yuan was officially included in the SDR currency basket of the International Monetary Fund. It is important to note that the yuan is the only currency included in the SDR basket that is not yet fully convertible – restrictions on the free cross-border movement of the yuan, as well as on some transactions within China, are still maintained. The IMF experts believe that it will take 2-3 years to ensure the full conversion of the yuan. The yuan still accounts for only 1% of the world’s gold and foreign exchange reserves.
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