China's growth forecast remains strong despite gloomy global outlook

By Daniel Hyatt
0 Comment(s)Print E-mail, May 26, 2019
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Shipping containers are seen at a port in Lianyungang, Jiangsu province, China, on March 31, 2019. [Photo/VCG]

Critics have been having a bit of a hard time since last month when the International Monetary Fund (IMF) upgraded China's growth forecast for 2019. In the World Economic Outlook report, the global lender revised its estimate for China's growth for the year to 6.3 percent – the highest among the five major economies of the world.

The IMF is not alone in sharing the positive outlook. International financial institutions like J.P. Morgan Chase & Co., HSBC and Citibank have all revised China's growth to a higher estimate. 

This has triggered thought and debate among China watchers who are trying to decipher the reasons why China is still going strong in 2019 despite a gloomier global outlook.

Foremost is the improved stability of the economy. For the last two consecutive months, the official manufacturing PMI remained above the neutral value of 50. The PMI, or Purchasing Managers' Index, is an attribute which highlights the direction of trends in the manufacturing and service sectors. Its consistency depicts resilience in these two sectors and translates into stability at the national level.

Another evidence of stability comes from a research note by the Asian financial service group Nomura. Earlier this month, the group stated that China's headline Consumer Price Index (CPI) might rise in the coming months. But at the same time it predicted that the annual inflation figure will likely be around 2.5% – comfortably below the government's target of 3%.

The government's steady focus on improving the quality of its development process has also contributed to the revision by the IMF. There has been increased investment in industries that deal with high-tech production, whereas investment in manufacturing and services has added the qualitative element.

China's economic structure is also being upgraded through its efforts to embrace innovation. According to government guidelines, China has to work towards becoming an "innovative nation" by next year – an objective that is being pursued by focusing more on science and technology as China transforms its economy.

Taking the cue from the government, the private sector has also carried out its own innovative adaptations. It is upgrading its production lines and designs to meet the demands of modern consumers and compete with international standards. The private-public push towards innovation is thus improving the quality of China's growth.

The Central Economic Work Conference (CEWC) – a meeting of the Chinese authorities' top political and finance officials – held its annual session in December last year and vowed to keep China's prudent monetary policy "neither too tight nor too loose." Market liquidity was, meanwhile, to be maintained at a reasonably ample level. These decisions promised stimulation of a growth in credit and social financing and have since had a pronounced effect on national activity.

A policy stimulus by the government introduced at the start of 2019 also aimed at augmenting the private economy. In addition to other areas, it focused on developing small and medium-sized enterprises – a segment that is considered a significant economic driver. Moreover, a corporate tax cut plan of up to 2 trillion yuan per year was released by the State Council along with the central bank's continuous reduction of Reserve Requirement Ratios (RRRs) to allow for increased fiscal spending.

Multiple indicators also show the effectiveness of these policies. The industrial sector is making a remarkable comeback with profits of leading firms surging, the property sector is becoming fairly stable and the consumption of luxury items is rising. The domestic consumer too is emerging as a strong force, adding to the profits from foreign markets.  

Perhaps the most noteworthy engine of China's economy has been the Belt and Road Initiative (BRI). The infrastructure project spans multiple continents and contributes to the prosperity of participating nations; China included. This year, the BRI has led to China's impressive trade performance. Customs data reveal that the volume of China's exports and imports was up 4.3% year-on-year, while trade with BRI members remained higher than one-fourth of the total foreign trade.

Surveys were recently conducted at the American Chamber of Commerce in China and the European Union Chamber of Commerce in China. They respectively found China to be a major investment destination and the next harbor of their businesses' expansion. Official estimates of economists' confidence have likewise been encouraging as the evaluation index of the first quarter of 2019 rose sharply from that of the previous year.

Observers have showed a positive view of China's economic growth despite their less optimistic view of global growth. The second largest economy has learned to adjust itself to adapt to protectionist turbulence in international trade and advisors are correcting their charts to ensure that it remains on its unflinching trajectory.  

Daniel Hyatt is a Pakistan-based freelance journalist and commentator on modern China.

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