China’s economy is likely to grow by around 5 to 6 percent in the 2020s, remaining at the medium-pace growth section of the L-shape pattern, a senior researcher at a government think tank said on Jan 25.
“The economy has entered a moderate growth track and will continue to grow at the bottom part of the L-shape pattern,” said Liu Shijin, vice-president of the China Development Research Foundation during the China Finance Annual Forum.
The L-shape pattern comes when the economic growth rate first falls and then levels out, thereafter maintaining medium-pace growth.
Some promising signs, such as the recent recovery of industrial profits, are likely to support the Chinese economy to rebound a little in the coming months, but it does not point to a major increase of the country’s growth pace, Liu said.
“China only needs 6.3 percent year-on-year growth to achieve its target of doubling GDP by the end of 2020 from a decade earlier as scheduled,” he said. In the 2020s, China’s economic output is likely to grow at moderate pace, by around 5 to 6 percent year-on-year, according to Liu.
Amid the transition from pursuing high-speed growth to focusing on high-quality growth, the government needs to make a number of adjustments to the economic structure, including solving the piling up of local government debts, he said. Some efforts can be taken, including reducing the size of the government balance sheet, he said.
“The government needs to develop more sustainable financing channels to attract private capital to invest in public goods,” Liu added.
He said local governments should move away from pursuing high GDP in order to secure political promotion, which would help curb massive excessive borrowing to spur growth at local levels.
Echoing his remarks, Bert Hofman, the World Bank’s country director for China, Mongolia and Korea in the East Asia and Pacific Region, said that after the central government released a slew of measures to shut the door for illegal borrowing channels, local governments should follow the rules.
“Local governments should not bail companies out or provide guarantees for debt repayment, but should let borrowers shoulder their own responsibilities instead,” Bert said.
Ren Zeping, chief economist of Chinese property developer Evergrande, said efforts to deal with financial risks, though facing strong headwinds, need to be implemented steadfastly for at least the next three years, otherwise existing problems will trigger new risks affecting the healthy growth of the economy.