Outlook for China's Economy – Roundtable Discussion

In the first half of 2018，China's economy underwent some profound changes. First，the macro economy continued to show steady growth and profits of state-owned enterprises hit a new high but there was slower growth in fixed asset investment and consumption. Second，financial deleveraging efforts encountered new challenges. There was a continuous slowdown in the growth of total social financing and M2 money supply while significant swings in the stock market and the currency were seen. Additionally，there were public concerns about new regulations on asset management. Third，external uncertainties continued to mount just as central banks accelerated the process of monetary policy normalization. However，major economies and emerging markets had to contend with President Trump's global policies. Fourth，steady and neutral monetary policy and proactive fiscal policy were used in tandem effectively. Reasonable liquidity in the financial market，and liquidity tension and strict regulatory supervision in the economy. Meanwhile，promising growth in fiscal revenue in the first half of the year has led to more controversies. Against this background，what is the likely trend for China's macro economy? Are policy adjustments needed now? These are key questions to be addressed in the following roundtable discussion.

Moderator: Zhong Wei，associate editor at China Forex

Panelists: Zhang Ming，chief economist at Ping An Securities，research fellow at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences

Deng Haiqing，associate dean of Research Antgroup.com，visiting professor of Renmin University of China

Zhong Wei: I would like to welcome to our latest economic roundtable our two guests，Messrs. Zhang Ming，chief economist at Ping An Securities and research fellow at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences，and Deng Haiqing，associate dean of Research Antgroup.com and visiting professor at Renmin University of China. As we can see，China's economy made some significant gains over the first half of the year. This includes an improvement in the profits of state-owned and state-controlled enterprises and a decline in their debt ratio. Total use of electricity remained at a relatively high level，the producer price index did not fall significantly，and fiscal revenues increased substantially. Overall，economic growth remained in a reasonable range and was pretty much in line with expectations. On the other hand，there were a number of more worrisome economic datapoints. For example，the growth rates of fixed asset investment and consumption were at about their lowest levels in two decades. Entrepreneurs and consumers showed a lack of confidence. The public was also worried about high levels of household debt. The consumer price index topped 1% again and the foreign trade situation remained unclear. How would you describe the economy over the first half of the year. Would you describe it as maintaining steady growth?

Zhang Ming: In the first half of this year，the increase in external uncertainties and the Chinese government's measures to prevent and control financial risks led to a significant decline in net export growth and a moderate decline in investment growth，while domestic consumption became the stabilizing factor in the economic growth picture. In 2017，net exports of goods and services spurred economic growth by 0.6 percentage point. In the same period of 2018，net exports of goods and services dragged economic growth down by 0.7 percentage point. Affected by the Chinese government's measures to prevent and control financial risks，the contribution of total capital formation to economic growth decreased slightly from 2.2 percentage points in 2017 to 2.1 percentage points in the first half of 2018. Under these circumstances，the economic growth rate in the first half of 2018 remained at 6.8%. The key is that the contribution of final consumption expenditure increased from 4.1 percentage points in 2017 to 5.3 percentage points in the first half of 2018. Interestingly，the year-on-year growth rate of total retail sales of consumer goods in the first half of 2018 was significantly lower than in the same period of last year，though education，medical care，and entertainment services were stronger.

Deng Haiqing: In the first half of 2018，we saw a deviation between the production side and the demand side of the economy. Specifically，economic output showed significant resilience in the first half of the year，and industrial value-added data often exceeded market expectations. For example，in April，the growth in industrial value-added output was expected to be 6.4%，but the actual growth was 7%. However，the performance on the demand side was weak，while infrastructure，real estate，consumption，and foreign trade data all underperformed. The yuan exchange rate was at a relatively high level in the first half of the year，and the prospects for Sino-US trade was hazy，resulting in a poor export performance. Therefore，on the whole，demand was sluggish in the first half of the year. June economic data showed a decline in production side data in addition to weakness in demand.

Zhong Wei: What pace of economic growth would you expect in the second half of the year，assuming that monetary，fiscal，and regulatory policies remain basically unchanged? Some scholars contend that the rebound in the Chinese economy that emerged at the end of 2016 has largely run out of steam and the economy is facing downward pressure once again. Some scholars maintain that there is a greater divergence in the conditions of the world's major economies. They say that internal and external pressures on the economy are growing and risks are rising. Others believe that China is on track in its deleveraging and restructuring programs，and that economic reforms in conventional and innovative industries are accelerating. They say that it is normal for a small number of enterprises to undergo unfavorable changes. What are your views on the economy for the second half of this year. How do you see economic growth，prices，investment and consumption shaping up?

Deng Haiqing: Personally，I see the growth in the gross domestic product coming in at about 6.6% to 6.7% in the second half of the year and prices will basically remain around 2%. The main reason is that except for the US，economic growth around the world is on the decline. The hazy outlook for growth in much of the global economy makes it difficult to see an improvement in  exports. In addition，the leverage levels in the domestic residential sector are unsustainable and consumer demand is under downward pressure. Expanding imports will replace some domestic production. With regard to infrastructure construction，it is likely that with only minimal policy shifts，infrastructure spending growth is probably going to hold steady. However，with local government debt constraints strengthened，it is still difficult to see a big upturn in infrastructure spending. Therefore，in the second half of 2018，we should see a continuation of the gradual disappearance of our debt-driven prosperity，with further  downward pressure on the economy.

Zhang Ming: If macroeconomic policies and financial supervision remain basically unchanged阅读全部文章，请登录数字版阅读账户。 没有账户？ 立即购买数字版杂志