China’s steady, stable approach is the proper course, according to Zhu Min
Despite concerns about slowing global economic growth, officials from several international financial organizations have expressed optimism about China’s economy.
Zhu Min, deputy managing director of the International Monetary Fund, said people attending the 2014 annual meetings of the IMF/World Bank Group held in Washington over the weekend described China’s slower economic growth as a “welcome” event.
“It is a good thing, and it will ensure steadier growth of the Chinese economy in the future,” Zhu told a group of Chinese journalists on Oct 12.
The IMF has forecast the Chinese economy will grow 7.4 percent this year and 7.1 percent next year. Although that is higher than the IMF’s forecast for global economic growth of about 3.3 percent, it is low compared with China’s often double-digit growth over the past 30 years. China’s GDP grew 7.7 percent in 2013, which was the lowest rate since 1999.
World Bank President Jim Yong Kim noted on Oct 9 that many people find it hard to deal with China’s lower growth rates. “But we feel that (China’s leaders are) doing it with tremendous awareness of what they’re trying to accomplish.”
China has pledged to transform its economic growth model to be less driven by exports and investment and more by domestic consumption and moving up the supply chain. A slowdown is to be expected during the process.
Zhu, who was a senior official at several Chinese banks before joining the IMF in 2010 as the inaugural special adviser to the managing director, blamed China’s slowdown on policies that tightened lending, as well as on shadow banking and local government debt.
“The reduction of liquidity will slow down economic growth,” Zhu said.
Shadow banking in China now accounts for 25 to 35 percent of GDP, the fifth-largest rate in the world, IMF Managing Director Christine Lagarde said last week.
Zhu also attributed the slowdown to high property prices and excessive stock that inhibit real estate investment. As a result, GDP growth will probably drop by 1 percentage point this year and continue to affect economic growth next year, according to Zhu.
He said that attendees at the annual meetings believe China’s efforts over the past 18 months curbing local government debt and shadow banking and improving oversight have begun to bear fruit.
“Basically, people are no longer talking about the eruption of China’s debt crisis as they did 12 months ago,” Zhu said. But high debt and shadow banking are still big concerns, and more efforts are needed on those fronts, he said.
But Zhu said “targeted stimulus” programs of railways, new products and infrastructure have made progress.
Some 12 million jobs were created in China so far this year. “This job creation number is not at all lackluster compared with an 8 or 9 percent GDP growth,” Zhu said. China created 13 million jobs in 2013.
Zhu also credited China’s economic restructuring with the fact that the service sector contributed more to the GDP than the manufacturing sector this year.
He cautioned that continued restructuring of the real estate sector is still a major task, because the property market makes up such a large chunk of GDP growth.
He noted that the long supply chain of the real estate sector means it is both a difficult and important task.
“As the world’s second-largest economy, China’s economic stability is especially important to global economic growth,” Zhu said.
Jorge Mariscal, chief investment officer for emerging markets at UBS AG, said: “China’s slowdown is a healthy correction, in many ways an engineered slowdown. So far, this rate of decline of the economy isn’t so concerning as to justify a very aggressive stimulus program, whether fiscal or monetary.”
Overall, China’s slowing momentum is seen as positive rather than alarming. According to Malaysia’s central bank Governor Zeti Akhtar Aziz, moderating growth will make it more sustainable, which benefits all of Asia.
Markus Rodlauer, deputy director of the IMF’s Asia and Pacific department, said in a recent speech that 1 percentage point lower growth in China would translate to about 0.1 percentage point less global growth, with larger impacts on selected economies.
China and other emerging markets and developing countries have accounted for more than 80 percent of world growth since 2008. “Led by Asia, and China in particular, we expect that they will continue to drive global activity,” Lagarde said last week.
Zhu said: “I hope the Chinese economy will continue to grow in a sustainable way.”
Kim, the World Bank president, described China’s efforts to move up the value chain and focus economic growth more on consumption and services as being “very difficult things to do”.
Noting that China’s economic growth has moderated from a high rate of 10 percent, Kim said the important thing is that China stays committed to the reform process.
“We believe that the reform process and moving toward a different growth model are what China needs to do.”
Kim described moving to a different growth model while maintaining a particular growth rate to create jobs as being a delicate balance.
WHAT THEY SAY
We estimate that the contribution of exports to GDP growth surged from 0.9 percent in the second quarter to 2 percent in the third. Foreign trade’s contribution to China’s overall economic growth will substantially rise.
-- CHEN JIANHENG, analyst, China International Capital Corp Ltd
China’s export growth accelerated more than the market and what we had anticipated, partly because the base of comparison was very low. We expect export growth to moderate in the coming months in the light of recent weakness in global demand and currency strength.
-- RESEARCH NOTE, Goldman Sachs Group Inc
The trade data are in line with our general judgment of China’s trade activity, which rebounded in the third quarter and is stabilizing in the fourth. But China remains under pressure to meet its full-year target for trade growth.
-- CHU JIANFANG, chief economist, CITIC Securities Co
With stronger exports, import demand also may be better in the fourth quarter. The trade data are likely to provide short-term support to the value of the yuan as an unexpected rise in imports is likely to ease broader economic growth concerns and pose questions about the need for further policy stimulus.
-- CHANG JIAN, chief economist, Barclays Plc