Debt looms as major China challenge

Managing financial risk has moved to the top of the priorities for the Chinese government’s economic policy.

President Xi Jinping: less focus on growth, more on quality of growth. Pic: AP

Managing financial risk has moved to the top of the priorities for the Chinese government’s economic policy — with debt looming as a major challenge.

Xinhua news agency said that following the annual central economic work conference of the ruling communist party, chaired by President Xi Jinping in Beijing, China would “fight the critical battle of addressing major risks with the priority on managing and preventing financial risk” over the next three years.

The meeting — involving more than 400 top officials from all key party and government economic and financial agencies, ministries and banks — dubbed the program it adopted as “Xi Jinping Economic Thought on Socialism with Chinese characteristics for a New Era.”

It decided that China would maintain its “proactive fiscal and prudent monetary policy” for 2018.

Its focus on such “prudence” was influenced by concerns not only about debt, but also about the prospect — now again looming large — of a trade war with the US, following the launch on Tuesday of President Donald Trump’s new national security strategy that prominently presented China as a competitor.

China’s top government think tank, the Chinese Academy of Social Sciences (CASS), is forecasting that economic growth will ease slightly in 2018, but still reach 6.7 per cent.

It said in its annual outlook report that the economy will grow by 6.8 per cent in 2017. It surged to an unexpectedly high 6.9 per cent in the first half of the year, before falling to 6.8 per cent in the last quarter and likely declining further, to 6.7 per cent, this quarter.

The government’s original target for this year was about 6.5 per cent. In 2016, the Chinese economy grew 6.7 per cent, the slowest rate for more than 25 years.

President Xi has indicated that the government would step back from its former strong focus on growth, to a greater concentration on quality of growth.

He did not name any growth targets during his comprehensive, three and a half-hour speech to the recent 19th party congress.

The CASS report predicts that the consumer price index will grow by 2 per cent in 2018, 0.4 percentage points above the expected outcome for this year.

The pace of the increase in infrastructure investment has been declining since the second quarter of 2017, it said — albeit reaching 7.2 per cent for the first 11 months of this year — with next year’s rise of fixed-asset investments forecast at a substantially reduced 6.3 per cent.

Imports rose 15 per cent in 2017, about twice the pace of exports, which increased by 8 per cent — thus pulling back the trade surplus.

Consumption, reflecting the surge in imports, rose by 10.1 per cent this year.

The CASS report stressed the challenges presented by the current five-year plan that runs through 2020 — to create 25 million jobs a year, and to shift 3 million people from rural areas to cities.

The academy also reported that China’s “new economy” — including e-commerce and online businesses — grew by an average 16.1 per cent per year in the decade to 2016, twice as fast as overall gross domestic product.