Economic Watch: No middle-income trap for China as restructuring moves forward

Source: Xinhua| 2017-07-27 23:58:57|Editor: Mu Xuequan
Video PlayerClose

BEIJING, July 27 (Xinhua) -- Making headway in restructuring, China is seen to have the will and the way to avoid the middle-income trap.

Positive changes are taking place in China's economy, with steady growth supported by structural improvement, policy makers said Thursday.

The economy saw better-than-expected performance in major indicators in the first half of the year, and companies' expectations and market confidence are improving gradually, Yang Weimin, deputy head of the Office of the Central Leading Group on Finance and Economic Affairs, China's top economic policy-making office, said at a press conference.

China's quarterly GDP growth increased from 6.8 percent in the fourth quarter of 2016 to 6.9 percent in the first two quarters of this year, beating market expectations.

Rather than adopting large-scale stimulus, China has been pushing forward mass entrepreneurship and innovation to fuel the real economy, and prompting steady growth by restructuring, said Cong Liang, an official with the National Development and Reform Commission.

Consumption, investment and export posted more balanced growth, with consumption accounting for 63.4 percent of GDP growth in the first half.

During the period, the country saw a relatively fast expansion of the service sector, which contributed to 59.1 percent of economic growth.

The structure of the industrial sector was optimized, with progress made in eliminating outdated capacity.

So far this year, authorities had cut outdated capacity in the coal and steel industries by 111 million tonnes and 40 million tonnes, respectively,according to Cong.

High-tech industries grew faster than traditional industries, while measures to drive mass entrepreneurship and innovation created jobs and new momentum of growth.

In the first half of 2017, newly registered businesses surged to 2.91 million nationwide, up 11.1 percent year-on-year, with 16,000 registered every day on average, according to Xing Zhihong, spokesperson for the National Bureau of Statistics.

"The Chinese economy enjoys bright prospects and will not fall into the middle-income trap", Yang said.

The middle income trap occurs when a country's growth plateaus and eventually stagnates after reaching middle income levels. China became a middle-income country in 2012 after its per capita GDP exceeded 5,000 U.S. dollars, according to the National Bureau of Statistics .

Optimism on China was shared by some global institutions and investment banks.

In light of the strong data and expectations of continued fiscal support, the International Monetary Fund on Monday revised up China's growth forecast for 2017 and 2018 to 6.7 percent and 6.4 percent, respectively.

The Asian Development Bank, J.P. Morgan, Standard Chartered, Citibank and Nomura also raised their China growth forecast for this year last week.

While upbeat on China's growth, policy makers cautioned that structural adjustment remains an unfinished task, while warning of dangers and uncertainties such as high leverage and rising corporate cost.

"The course of deleveraging can not be altered," Yang said, describing high leverage as "the source of risks."

Authorities should not allow the economy's leverage ratio to climb further for the sake of supporting growth, Yang said.

He named several areas where systemic risks could arise, including interbank investment and financing, local government debt and state-owned enterprise (SOE) debt, calling for early measures to deal with them.

In the second half of the year, China will defuse local government debt risks in a proactive and steady manner, advance financial regulation, stabilize the property market, and support foreign investment inflows and private investment, Yang said.

China has put deleveraging of SOEs high on its agenda, according to a key national financial work conference earlier this month.

The SOEs' high leverage is also among several "grey rhinos" that China should watch out for, said Wang Zhijun, an official with the Office of the Central Leading Group on Finance and Economic Affairs.

Unlike "black swans", which are unpredictable incidents, "grey rhinos" are big problems with signs but often draw inadequate attention and lead to serious consequences.

Authorities should comb through such "grey rhinos", which also include shadow banking, real estate bubble, local government debt and illegal fundraising, and take effective measures to address them in accordance with their gravity and urgency, Wang said.