Supply-side structural reform, public investment reap rewards for economy

Li Daokui, director of the Center for China in the World Economy at Tsinghua University [Photo provided to China Daily]

The IMF on Monday raised its forecast for China's GDP growth for this year and 2018, citing growth-boosting high public investment by the world's second-largest economy.

Analysts said growth could still be higher and reach 7 percent as the country presses ahead with its supply-side structural reform.

The IMF said it expected China to increase public investment to maintain stable growth and forecast that its GDP growth could be 6.7 percent this year, up 0.1 percentage point from its April forecast. China's growth may moderate to 6.4 percent in 2018, up 0.2 percentage point from its previous forecast.

Li Daokui, economist and director of the Center for China in the World Economy at Tsinghua University, said that the "Chinese economy will bottom out this year and regain strong growth momentum in 2018 and 2019, and possibly rise above 7 percent in terms of year-on-year GDP growth."

The ongoing supply-side structural reform has seen China cut some of its excessive production capacity and bolster prices, and local governments are expected to be more active in developing the economy after the 19th National Congress of the Communist Party of China sets the tone for growth later this year, Li was cited by a Chinese news portal as saying.

China achieved faster-than-expected GDP growth of 6.9 percent in the first half of this year and the upward growth trend may continue in the coming three to five years, Li said at a forum in June.

Li said he believed that China is poised for a golden opportunity of economic recovery and expansion after experiencing years of decline in its growth rate. He said that investment has stabilized domestically and consumption has been on the rise, bolstering the economy despite strengthened financial market regulation and cooling monetary supply growth.

Investment in infrastructure grew 9.2 percent year-on-year in the first quarter, up from 8.1 percent over the same period of last year, signaling that investor confidence is picking up. The report predicted that private investment and infrastructure investment will continue to grow from the later half of 2017 and in 2018.

Li said the rebound in investment is attributable to the steps the country has taken in recent years to reduce leverage levels, cut taxes, and phase out excessive industrial capacity, which aimed to replace old growth drivers with new ones, as well as tax cuts.

The country's continuous deleveraging efforts in both the financial and non-financial sectors have produced results, cutting corporate debt and boosting prices, which contributed to an improvement in corporate profits and steadied the nerves of investors over China's potential debt crisis.

"All these efforts have helped businesses gain increased profits in 2017, which has boosted corporate confidence in the real economy and led to a stronger willingness to invest, " Li said.

Liu Yuanchun, an economist at Renmin University of China, argued that although the first two quarters of 2017 had seen relatively strong investment momentum, investment from State-owned enterprises still takes the lion's share of overall investment, adding that confidence in the private sector remains too weak to bolster a strong economic rebound.

The current anti-globalization wave and rising protectionism in certain countries are a major concern for many observers, but this may bring some opportunities for China to expand its influence in global economic and financial governance, particularly with the unfolding of the Belt and Road Initiative, the report suggested.