The consensus is that expansion in the world’s 2nd-largest economy will slip to 6.5% in 2018 from 6.8% last year
BEIJING • From the strength of global trade to the resilience of domestic consumption, reasons to think China’s economy won’t slow as much as expected this year are gathering.
The consensus among economists is that expansion in the world’s second-largest economy will slip to 6.5% in 2018 from 6.8% last year, according to Bloomberg surveys.
Yet as the latest data show that the official manufacturing gauge remains robust, and offshore shares had their best start to a year since 2009, there are voices predicting a better performance than that.
JPMorgan Chase & Co economists on Wednesday raised their 2018 growth forecast to 6.7% from 6.5%, citing the “upbeat external outlook”.
China International Capital Corp Ltd (CICC) and Shanghai Securities Co project a second consecutive annual acceleration.
2017 started with economists projecting a deceleration, only to upgrade their outlook consistently through the year.
For Morgan Stanley, higher than expected shantytown renovation targets, renewed pledges that liquidity won’t be too tight, and strong demand for China’s exports are among positive signs that have brightened expectations for this year.
A gravity- defying property market, buoyant consumption and rapid progress in high-tech manufacturing facilities are among other factors economists have cited as areas that could help spur upside surprises this year.
“Growth could accelerate in 2018, defying market expectations of gradual cooling,” said Frederic Neumann, co-head of Asian economics research at HSBC Holdings plc in Hong Kong.
“More funds are being mobilised to advance the country’s advanced manufacturing capability. This could provide a lift to growth as capital expenditure soars.”
“Risks remain significant. But the early signs for 2018 growth and reform are positive. In past years, China’s lowering of its growth target from 8% to the current 6.5% was viewed as a sign of weakness. In 2018, policymakers could step back from the target from a position of strength,” according to Tom Orlik and Fielding Chen, Bloomberg Economics.
The following are among the areas flagged by economists as having the potential to help propel growth surprises:
Confidence in the global and domestic economic outlooks may help support consumer spending, said Rajiv Biswas, chief Asia-Pacific economist at IHS Markit in Singapore.
Consumption spending already accounted for about two-thirds of the expansion in 2016 and 2017 and has become the economy’s most important engine, he said.
At CICC in Beijing, chief economist Liang Hong sees consumers in smaller cities helping support growth this year, which she estimates will be 6.9%.
“This year might hurt even more for the bears because a key driver of expansion will be consumption,” says Liang, who previously worked for the International Monetary Fund. “What can they criticise about that?”
• Market boom
Financial markets may get a boost this year as investors with the equivalent of about US$20 trillion (RM80.2 trillion) of assets trapped in the country chase the best returns, said Derek Scissors, chief economist at the China Beige Book in Washington.
“The default is always property but government discomfort with property prices, and belief the commodities rally is over could push money toward stocks if benchmark interest rates are kept low, or bonds otherwise,” he said.
Analysts don’t forecast a change to the rates, which set borrowing costs economy-wide, through early 2020, a Bloomberg survey shows.
• Advanced manufacturing
The rapidly upgrading manufacturing base and Internet industry can now better aid growth, helping offset slowdowns in real estate and infrastructure investment, said Zhu Ning, deputy director of the National Institute of Financial Research at Tsinghua University in Beijing.
That new economy may take off faster than expected as China markets its high-speed rail industry and deep-sea exploration technology to other countries, according to Pauline Loong, MD at research firm Asia-Analytica in Hong Kong.
• Global tailwind
The possibility that global growth continues to accelerate this year would boost exports, pushing the economic expansion above 7%, according to Shane Oliver, the head of investment strategy at AMP Capital Investors Ltd in Sydney.
Stronger growth in major trade partners bodes well for exports, said Orlik in Beijing and Chen in Hong Kong.
They noted the consensus forecast for US and euro-area growth in 2018 has risen in recent months, and based on Purchasing Managers’ Index readings for China’s major trade partners in December, momentum is at its strongest since 2010.
• Pivotal property
So important a growth engine is real estate that it wouldn’t be a surprise if curbs on prices are loosened, both for mortgages and developers, said Christopher Balding, an associate professor at the HSBC School of Business at Peking University in Shenzhen.
“Chinese real estate goes through these up and down cycles and I won’t say we are at the trough yet,” he said.
“But I wouldn’t be shocked by a surprise kick to real estate in 2018.”