LONDON — The past five years have seen some notable reform successes in China’s economy, including important changes to the local government fiscal system and financial system reforms, a British economist has said.
Marcus Wright, a senior economist at Royal Bank of Scotland, told Xinhua in a recent interview that the pace of reform had accelerated over the past five years compared to the previous five, such as removing controls on deposit rates, a deposit insurance scheme and the Bond Connect program.
“Indeed, there are tentative signs of changes in the growth model. Household consumption as a share of (gross domestic product), long criticized for being too small, has tentatively begun to rise. And the service sector continues to take up a bigger share of output. These are positive developments,” Wright said.
He said that China had found huge success in the “resource mobilization” phase of economic development — building up its capital stock of factories, infrastructure, and cities. It is now attempting to transit to a “resource efficiency” phase. But as history has shown, it’s not a straightforward process.
“There are major areas where reform is needed. Growth has been held up by debt accumulation and the deterioration in the productivity of capital across large swathes of the economy is a sizable concern. Fixing these problems is a considerable challenge. Reform needs to graduate from piecemeal to deep-rooted. Otherwise progress on altering the growth model may be too slow to avert a substantial slowdown,” said Wright.
“If reform efforts begin in earnest soon, even 2018 might be a bit bumpier than the current consensus view. But the improvement to China’s longer-term outlook would likely be considerable,” Wright added.
The latest data shows that China’s imports grew 14.4 percent in August, showing strong growth in domestic demand, which reinforces views that China’s economy is still expanding at a healthy pace.
The outlook for China’s economy is steady in the short-term, he said. Expanding credit has fueled a rebound after the slowdown through 2014 and 2015. That rebound appears to still have legs through at least the rest of 2017. Property market activity remains robust.
“Meanwhile, global demand appears firm with the new export orders component of the PMI reaching its highest level since 2010. The consensus is for growth of 6.7 percent this year after a similar pace in 2016. A marginally lower rate of 6.4 percent is forecast for 2018,” said Wright.
As protectionism is on the rise in certain parts of the world, China remains firmly committed to an open and inclusive world economy.
But according to Wright, “the world economy and the global trading system isn’t speeding headfirst into protectionism. In fact, global trade is expanding at a rather decent pace by the standards of recent years. That’s beneficial to China’s economy.”