The World Bank on June 5 raised its forecast for China’s year-on-year GDP growth this year to 6.5 percent from its earlier prediction of 6.4 percent, citing the country’s “solid” economic growth so far this year.
Analysts said China may face more growth headwinds in the second half of the year and the authorities will finetune policies to stabilize growth if the situation unexpectedly sours.
China’s GDP growth was 6.8 percent year-on-year in the first quarter, indicating that the economy has remained on track after it registered 6.9 percent growth in 2017. Data for the second quarter showed that the economy continued to be resilient, laying a solid foundation for stable growth in the second half of the year.
The World Bank also said in the latest Global Economic Prospects report that China’s economic structure has improved, with its activity continuing to shift to consumption while investment growth rates remaining well below levels seen in recent years.
The bank acknowledged China’s progress in implementing reforms and economic opening-up.
“Authorities in China have implemented a wide range of reforms in recent years. These include steps to reduce excess capacity in the industrial sector. Notable progress has been made on mixed-ownership reforms aimed at diversifying the ownership structure of State-owned enterprises.”
It noted that more than two-thirds of China’s centrally administered SOEs and their subsidiaries have allowed outside investors, restructured, or gone public.
“Following progress in opening its equity and bond markets to foreigners, China is now taking additional steps to remove foreign ownership limits in financial institutions and some other sectors,” it said.
Moody’s Investors Service said on June 5 that China is moving ahead with its economic restructuring measures, such as its supply-side structural reform.
“If such measures lead to a reallocation of labor and capital resources that shift credit toward sectors with higher productivity growth, it will support the Chinese government’s credit quality by increasing its debt-carrying ability,” Marie Diron, managing director of Moody’s Sovereign Risk Group, told a conference.
But the World Bank warned that China faces some policy challenges as it pursues stable and balanced growth.
“The key economic policy challenge is to manage the transition to slower but more balanced and sustainable growth,” it said.
“This will require continued implementation of reforms to reduce financial vulnerabilities, promote market competition and private sector development, reallocate capital and labor toward more productive firms and sectors, and foster innovation through stronger intellectual property rights, as well as additional research and development.”
As China’s property and infrastructure activities are expected to weaken in the second half of this year, the country may face some challenges to maintain stable growth, although manufacturing investment revival, resilient consumption and strong external demand will offer some cushion, said a recent report by financial group UBS.
“If external uncertainty escalates and domestic demand slows sharply, the government would further fine-tune policies, including more support for consumption, manufacturing and service investment, and even gradual relaxation of tight control on local quasi-fiscal spending,” the report said, adding that there may be up to 200 base points of additional reserve requirement ratio cuts this year.
The World Bank also forecast that the global growth will decelerate from a solid 3.1 percent this year to 3 percent next year and 2.9 percent in 2020.
It also warned against the risks of escalating trade protectionism, which it said may “have major adverse consequences for global trade and activity”.