China will face a series of economic challenges in 2018, such as a more volatile financial market, increasing local government debt and a slump in the real estate sector, experts said.
These challenges will put downward pressure on the country’s economic growth, and most experts the Global Times talked to on Monday predicted that China’s GDP growth would edge down in 2018 compared with 2017, though not by too much.
Signs of a slowdown emerged toward the end of 2017. China’s manufacturing Purchasing Managers’ Index came in at 51.6 in December, compared with 51.8 in November, according to data released by the National Bureau of Statistics (NBS) on Sunday.
The industrial sector also slowed around the end of 2017. The NBS data showed that in the first 11 months of 2017, major industrial enterprises achieved year-on-year growth of 21.9 percent, down 1.4 percentage points compared with the growth in the first 10 months.
Experts said that challenges will occur in the domestic financial sector in 2018, resulting from both external and internal factors.
Liu Xuezhi, a senior macroeconomic expert at Bank of Communications, said that interest rate hikes in the US will not only drive up market interest rates in China, adding to the costs of financing, but will also increase the risk of capital outflows from China to the US.
Another potential spillover impact in the financial sector is the rising appetite around the world for speculative financial trading, such as virtual currency trading, which is increasing the risk of new financial crises, Cheng Shi, head of International Research at ICBC, told the Global Times Monday.
This could in turn trigger a plunge in some countries’ stock markets, especially in developing countries, Cheng said, adding that China’s A-share market could also be affected.
Apart from overseas influences, domestic factors are also a concern. Shao Yu, chief economist at Shanghai-based Oriental Securities, said the government’s continuous deleveraging efforts might cause liquidity supply to become too tight, which would cause losses in financial areas like bond investment.
Zhou Xiaochuan, governor of the People’s Bank of China, the central bank, said Sunday that the government will stick to a bottom line of preventing systemic financial risks, according to a statement on the central bank’s website.
Rising government debt
According to Liu, the government has made a lot of efforts to tackle debt, especially at large domestic companies, but as company debts decrease, these efforts might shift to government and individual debt, in order to safeguard economic growth.
Rising debts among individuals would hurt overall consumption, Liu noted.
But Shao said that in general, the risks relating to government debt are controllable and the government is aware of the problem. “Some local infrastructure projects have been halted [to prevent debt risks],” he said.
Domestic local governments issued bonds worth 4.35 trillion yuan ($669 billion) by December 25, 2017, down from 6.05 trillion yuan in 2016, the 21st Century Business Herald reported on December 26, 2017.
The Ministry of Finance also said on December 23, 2017 that local governments must take responsibility for their own debts.
Apart from leveraging risks, the real estate sector will continue to edge down amid tightened regulations, Liu predicted, adding that this will have a negative impact on related industries like cement and steel.
However, Shao said that some of these challenges have been anticipated, and will be tolerated by the government.
“The government will sacrifice a certain level of economic growth for a more sustainable and high-quality economy,” he told the Global Times.
Liu also said that it is almost impossible to avoid an economic slowdown in 2018, but said the government can still take measures to improve economic quality, such as encouraging development of emerging industries such as high-end equipment manufacturing, increasing capital usage efficiency in fiscal policies and stimulating further reforms at State-owned enterprises.
Source: Global Times