China GDP to grow by 6.8%

A worker at the assembly line of automobile manufacturer Foton’s factory in Zhangjiakou, Hebei province. (Photo by CHEN XIAODONG / China Daily)

China’s economic growth will reach 6.8 percent year-on-year in 2017, thanks to the strong economic momentum witnessed in the first six months of the year, rebound in exports and a favorable external environment, a new report said.

The report, published by the Investment Strategy Group, a research unit of Goldman Sachs, said the country’s gross domestic product is on track to clock the first uptick since 2010 in 2017.

“This would be the first, albeit modest, acceleration in annual growth since 2010,” said Wang Shengzu, co-head of the ISG.

The recent growth stabilization has led to a notable rise in overseas investment in domestic fixed income products, the report said.

Overseas investment in negotiable certificate of deposits, a financial instrument trading in the interbank market, rose to $12 billion in August, said Wang.

Stronger growth momentum also helped reverse foreign exchange outflows to net inflows in August, the first such reversal in nearly three years, according to data from Goldman Sachs’ Global Investment Research Division.

According to ISG estimates, the general government fiscal balance stood at 2.3 percent of GDP in the first three quarters, the largest January-to-September deficit in the past decade, suggesting a very proactive fiscal policy while the monetary policy stance remained largely neutral.

The country’s GDP growth continued to show resilience in the first three quarters at 6.9 percent. Final consumption accounted for 64.5 percent of the headline growth or 4.4 percentage points, with the rest coming from investment and net exports, according to the National Bureau of Statistics.

“We think structural reforms, supply-side policies and more market-friendly initiatives are needed to support China’s rebalancing,” Wang said.

“After the 19th National Congress of the Communist Party of China, reforms in some areas are expected to accelerate in the near term, such as State-owned enterprise reforms and financial market liberalization,” he said.

“From the risk management perspective, deleveraging and strengthening financial regulation to contain systemic risks remain key focus of the government,” Wang added.

China has made progress in rebalancing away from external-led growth and more service-denominated economy, while the core challenge remains an excessive reliance on debt, Zhang Longmei, International Monetary Fund’s deputy resident representative in China, said at a forum hosted by International Monetary Institute of Renmin University of China.

Some key tasks in the near term include the reduction of financial sector agility and resumption of the transition to a flexible currency exchange rate, she said.

The Goldman Sachs report also forecast an accelerating global growth to a midpoint of 3.0 percent this year from 2.6 percent in 2016. But one of the potential concerns would be a disruptive trade policy by the United States.

Wei Benhua, an academic with the International Monetary Institute of Renmin University of China and former executive director for China at the IMF, said that the trade protectionism policies of the US would add uncertainties to the global economy, harm Sino-US trade ties and weaken cross-border trades in other regions.