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Investment, consumption to drive Chinese economy in 2018

Wu Xiaobo
Updated: Jan 6,2018 9:04 AM

Investment and consumption will be the two engines to drive China’s economic growth in 2018, according to a report by Economic Information Daily on Jan 5.

Driven by the manufacturing and the primary sectors, fixed-asset investment (FAI) is projected to grow at around 6.5 percent while consumption is expected to reach 10 percent for 2018 boosted by increasing residential income, the report said.

Fixed-asset investment to grow steadily

A number of institutions estimated the FAI will grow steadily in 2018. The Chinese Academy of Social Sciences, or CASS, estimated FAI will reach 69.2 trillion yuan ($10.67 trillion), growing at a nominal rate of 6.3 percent year-on-year.

A report by the Finance Institute of the Bank of Communications projected FAI to grow at 6.5 percent, while the National Academy of Development and Strategy of Renmin University of China gave a more upbeat forecast of 7.3 percent for the FAI growth. The estimate from the International Finance Institute of the Bank of China was around 7.2 percent.

Investment is likely to flow into more industries with high added value, said Wang Zhigang, deputy-director of the Macroeconomics Center of the Chinese Academy of Fiscal Sciences.

He also expected growing dynamism in private investment spurred by supporting policies and continuous progress in the supply-side structural reform.

Manufacturing will be the biggest highlight of investment growth given that the central government exercises supervision over infrastructure investment to guard against fiscal risks and the regulation over the real estate sector remains strict, he held.

Investment in the upgrading of the manufacturing sector will be increased, said Zhang Jun, chief economist of Morgan Stanley Huaxin Securities.

Investment will also rise in the primary sector as the government’s pledge to extend rural land contracts by another 30 years provides reassurance for farmers to expand production, according to Su Jian, processor at the School of Economics of Peking University.

Consumption still plays significant role

Many institutions believe consumption will remain a strong driving force for growth in 2018.

With the increase of income, Chinese residents are more willing to consume, said the report by the International Finance Institute of the Bank of China.

The rapid development of consumer finance and the upgrading of consumption patterns will also contribute to stable consumption growth in 2018, it added.

Income growth, consumption upgrading and pension reform will underpin consumption despite of slowdown in spending on automobiles and housing, said the report by the Finance Institute of the Bank of Communications.

Currently, online consumption mainly focuses on food, clothing and daily necessities and there is room for other variety of goods to expand market, said Su.

With the improvement in infrastructure, rural online consumption will also be boosted, he believed.

High quality products, education, tourism, and medical and elderly care services still have bright future, with the rise of the middle class and the unleash of consumption power in the rural areas, said Zhang Yu, researcher with Minsheng Securities.

Data from the NBS showed China’s GDP hit 59.33 trillion yuan in the first three quarters of 2017, up 6.9 percent year-on-year. During the period, consumption contributed to 64.5 percent of economic growth, up 2.8 percentage points year-on-year.