Economic growth will rebound after bottoming out in 2015 or 2016, as the Chinese economy looks for new drivers and structural reforms to offset a sharp decline in investment, according to economists at a forum hosted by the think tank of the State Council, China’s cabinet.
The coming two years will be critical because they will determine if China’s economy can successfully transition to a new growth model without experiencing a sudden deterioration, said Liu Shijin, vice-president of the State Council’s Development Research Center.
Downward pressure has been increasing since October, and the growth of further slowdown risks is accelerating, meaning the world’s second-largest economy will face a series of unprecedented difficulties, Liu told the 2015 China Development Forum in Beijing.
The next few years will see a continuing slowdown in investment growth, led by cooling investment in the property sector, following on from slowdowns in the pace of infrastructure construction investment and exports, Liu said.
Before the economy entered the “new normal” stage of development, investment in infrastructure construction and property accounted for almost half of China’s annual GDP growth, resulting in a lower proportion of consumption and net exports in the total.
More bankruptcies will be seen in the near future among manufacturing enterprises with low efficiency and excess capacity, Liu said.
Liu added: “But new growth momentum in the innovative sectors will offset the slowdown in investment and result in a soft landing. The Internet will change the traditional manufacturing industry’s business model and provide new growth power.”
The government has set a GDP target of about 7 percent this year, lower than the previous target of 7.5 percent, and economists have speculated that the absolute “bottom line” the leadership will tolerate will be 7 percent. A number of stimulus measures will be employed if GDP falls below that rate, they said.
Justin Yifu Lin, former senior vice-president of the World Bank, said the government is likely to retain the 7 percent target during the 13th Five-Year Plan (2016-20).
“It is likely that China will achieve a higher growth rate in the end,” Lin said.
“If the country can sustain 7 percent growth every year, it will contribute about 1 percentage point of global economic growth, which means China will remain one of the most important engines for the world economy.”
China’s real economic activity saw a soft start this year, despite robust export growth. Industrial output growth slid to a six-year low of 6.8 percent year-on-year in the first two months, while property sector activity weakened further, and there was a marked slowdown in manufacturing investment.