State Emissary, November 2017. Issue 1 2017 Edition | Page 29

SM | ECONOMY
CHINA'S ECONOMIC OUTLOOK
IN SIX CHART
China continues to enjoy strong growth—projected at 6.7 percent for
2017. And the country has potential to sustain strong growth over the
medium term.
BY KELSEY LILLEY
But to do so safely requires speeding up reforms to make
growth less reliant on debt and investment, the IMF said in
its latest annual assessment of the economy.
Here are the six things you need to know about this report.
IMF staff have revised up China’s growth outlook compared
to last year’s report. Growth between 2017 and 2021 for the
world’s second largest economy is now expected to average
6.4 percent, compared to 6.0 percent last year.
(2) But at a cost of higher debt, which leads to rising risks.
According to the IMF’s report, total non-financial sector
debt—which includes household, corporate and
government debt—is expected to continue to rise strongly,
reaching almost 300 percent of GDP by 2022, up from 242
percent in 2016. This raises concerns for a possible sharp
decline in growth in the medium term.
(3) Given strong growth momentum, now is the time to
intensify deleveraging efforts. The Chinese government has
started to take important initial steps to facilitate private
sector deleveraging—credit growth is slowing and the large
“credit gap” is narrowing. These efforts should intensify,
with the overarching priority being to focus more on the
quality and sustainability of growth, and less on quantitative
targets.
(4) To grow strongly, but also sustainably, China needs to
boost consumption. At 46 percent of GDP, China’s national
savings are 26 percentage points higher than the global
average, largely due to the household sector, with
consumption correspondingly low. This reduces the current
welfare of Chinese citizens, fosters high levels of investment
which are unlikely to be absorbed efficiently, and, were
investment to fall, would lead to even larger current account
surpluses, worsening global imbalances.
(5) Social spending in China is on the rise, but
more can be done. Increasing government
spending on health and pensions would increase
government consumption, but also private
consumption by reducing households’ need to
save. Increasing the progressivity of the tax
system could finance higher social spending and
reduce income inequality, which is among the
highest in the world.
(6) China also needs to increase productivity.
This can be done by making better use of
resources that are currently going to loss-making
(“zombie”) companies, overcapacity industries,
and State-Owned Enterprises (SOEs). The IMF
estimates that such efforts could increase the
contribution of productivity to #growth by about
1 percentage point over the long term.
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