Economic topics are expected to dominate the annual national legislative and political consultative sessions in March, with the focus likely to include supply-side reforms, growth prospects, real estate, debts and the yuan’s value.
Uncertainty in the global economy also is a likely topic for discussion during the two sessions－the plenary meetings of the National People’s Congress, the top legislature, and the Chinese People’s Political Consultative Conference National Committee, the top political advisory body.
Economists have remained generally upbeat about China’s economic prospects this year, while some have warned that risks, such as housing bubbles and rising corporate debt, need to be tackled to ensure stable economic growth.
Many economists at home and abroad have raised their forecast for China’s GDP growth this year to above 6.5 percent.
“GDP growth is important, but China will not simply focus on the GDP growth figure itself; instead, it will focus more on sustainability of growth,” Han Baojiang, an economist from the Party School of the Communist Party of China Central Committee, said on Feb 22. “The Chinese economy will stabilize and gradually improve this year.”
In 2016, China cut low-efficiency capacity in such sectors as steel and coal and lowered overall corporate debt. More progress is expected in 2017.
“This year, supply-side structural reform needs to be deepened,” said Li Wei, head of the State Council’s Development Research Center on Feb 19. “Zombie enterprises should be the focus of reducing excessive capacity, and market－and law-based methods should be used to eliminate low-efficiency production.”
Zombie enterprises are unprofitable and debt-laden but still have access to bank loans and public resources.
Li said corporate debt levels should be lowered this year. Taxes and fees－and especially transaction costs－should be cut to benefit the corporate sector, he said, while conceding there is not much room for tax cuts due to fiscal balance pressures.
Adjusting the nation’s real estate inventory is another important part of supply-side reform, and it will hinge on the effectiveness of real estate regulation, analysts said.
“The fundamental way to prevent housing prices from soaring is to increase land supply,” said Li Daokui, an economist at Tsinghua University. “What the government can do now is to restrict transactions, but despite the contraction of deals, it is difficult to foresee prices in first- and second-tier cities falling.”
If policymakers work only on the demand side, analysts warned, prices may continue to rise once policies restricting demand are eased.
Depreciation of the yuan relative to the US dollar by nearly 7 percent in 2016 is another area that has caused concern because of fears the currency may further weaken this year. But analysts said there is no basis for a big depreciation of the yuan against the greenback.
“The yuan is largely at a reasonable and balanced level, and it should not depreciate sharply” against the dollar this year, said Lian Ping, chief economist at the Bank of Communications.
“The key is to change market expectations through properly adjusting the supply and demand relationship (of the currency) and economic growth.”
Lian suggested China properly tighten the management of capital outflow. “For example, the policy allowing overseas industrial, property and securities investment should be carried out more cautiously, and speculative foreign exchange purchases should be strictly controlled,” Lian said.