China’s supply-side reform has made preliminary achievements during 2016. Some favorable factors have stabilized the economy and turned it for the better. Quality has improved and the economic structure continues to optimize. Thus the expected GDP growth of around 6.7% can be realized. Still, some major issues have not been resolved, causing a great concern on the downward pressure of China’s economy.
The initial effect of the supply-side structural reform is evident while the production gets stable. Since the beginning of 2016, China has cut down its excessive capacity ahead of schedule, the housing inventory has been effectively brought down; weak economic links have been strengthened, progress has been made in deleveraging and cost reduction, which has pushed forward the stable recovery of the industrial production, especially the further improvement and optimization of the industrial structure. From January to November, above-scale industrial production grew more than 6% for 9 consecutive months. Among them, the high-tech and equipment manufacturing expanded 10.6% and 9.3% respectively.
The demand of both external and internal markets is low. Starting from April, investments slowed down again and the private investments declined sharply in particular. The investments of the fixed assets and the private investments rose by 8.3% and 3.1% respectively from January to November, down by 1.9 and 7.1 percentage points over the same period. The actual increase of the retail consumption slowed a little because of the low increase of the residential income and the squeezed effect of the red-hot property market. The retail sales of the consumer goods actually grew 9.6%, a 1.0 percentage point lower than the previous year. The weak economy of the major trading partners pressed down China’s export as proved by the 7.5% decrease of export from January to September, a reduction of 4.4 percentage points on a yearly basis.
Consumer prices grew moderately and the industrial prices turned positive. Over 2016, consumer prices showed a moderate growth, mitigating the risks of both inflation and deflation. From January to September, CPI rose 2.0%, a 0.6 percentage point increase over the same period. With the price rebound of the primary commodities in the world and the gradual implementation of the supply-side structural reform in China, the supply of the industrial product market fell down much over the demand and the PPI price turned positive. From January to November, the PPI declined by 2.0%, a 3.2 percentage point narrower as compared with the previous year.
The employment situation was generally stable and industrial enterprises improved their productivity. Since the beginning of 2016, China’s employment situation has been stable as the economic structural change enhanced China’s employment and the governments at all levels worked to increase employment. From January to November, new jobs were available for 12.49 million people in urban areas, reaching the goal for the whole year ahead of the time. The industrial enterprises gained more profits at 8.6%, 10.6 percentage points more over the same period. Among them, manufacturing profits increased 13.2% year-on-year.
China can achieve an economic growth of over 6.5% in 2017. In 2017, global economic growth will still remain weak. Uncertain factors such as the election campaigns in some countries, anti-globalization sentiments and geopolitics will have a bigger impact on economic recovery. China’s economy will still face greater downward pressure because of the lack of new factors to support domestic growth, a bigger financial risk, low private investments and the low growth of residential income. Of course, China’s economy will run within a reasonable range, supported by the new fast-growing economic momentum, improved enterprises’ benefits, the need of inventory replenishment in the industrial area and the exiting room for macro regulation policy. China’s economy is expected to attain a 6.5% growth, given China’s potential economic growth, the demand change, more dividends released by the coming CPC’s 19th National Congress and the deepening reform.
Supply-side structural reform will be deepened. The recent Central Economic Work Conference has made it clear that China will deepen supply-side structural reform in 2017, moderately expand the aggregate demand, vigorously revive the real economy, foster a new momentum, and speed up the implementation of the key reform measures in state-owned enterprises, tax, finance, social security and so on.
China will continue its efforts on five major tasks: cutting industrial capacity with major efforts on iron and steel and coal industries further while reducing the overcapacity in the industries; bringing down housing inventory with the focus on the third- and fourth-tier cities; reducing leverage levels through appropriate leveraging by the government sectors in exchange for deleveraging in the enterprises; lowering corporate costs mainly through tax reduction, lower charges and lower factor costs; and improving all weak economic links.
Four priorities got special attention in the Central Economic Work Conference. First, the fiscal policy will be more proactive and effective, particularly in reducing the tax burden of the enterprises. Second, the monetary policy will keep steady and neutral, and will focus on fending off financial risks with the determination to remove some risk factors. Third, efforts will be made to revive the real economy and cultivate more century-old shops. The fourth priority is to build a long-term effective property mechanism based on financial, land, tax and legislation measures, reaffirming the housing nature as for living. It signals a shift from a demand-oriented regulation to a supply-oriented one.
