China's economic growth rate seen falling until at least 2018

DEC 16, 201512:24 AM

[BEIJING] China's economy, already in the midst of a half-decade deceleration, won't arrest its downward trajectory until at least 2018.

Six of 12 economists surveyed by Bloomberg last week say 2018 will be the turnaround year, while five said it will take until 2019 or after for growth to re-accelerate. The outlook underscores the challenge facing President Xi Jinping as he aims for gross domestic product gains averaging at least 6.5 per cent per year for the next five years so he can deliver on his goal of doubling 2010 income and GDP levels.

Policy makers are in a bind. Efforts to reform the supply side of the economy by eliminating overcapacity and improving the quality of expansion are key to long-term prospects, yet policies to fix the mess may weigh on the short-term outlook. That leaves the need for stimulus that risks adding to a debt pile already hanging over the world's second-largest economy.

Setting aside the notorious question of accuracy with China's GDP - which popped up again this month - growth is forecast this year to slow to its weakest since 1990 as robust consumption and strength in services isn't enough to offset the drag from slumping old-economy sectors including steel, coal and cement.

A future pick up in the pace of expansion may be driven by economic reforms that gather pace after a leadership reshuffle that begins in late 2017, according to Daili Wang, a Singapore- based economist at Roubini Global Economics LLC.  "My views of re-acceleration are based on the implementation of market reforms in 2018," said Mr Wang. "The ongoing anti-corruption campaign is a perfect barometer measuring opposition power and the 2017-18 reshuffle should prove the last jigsaw to consolidate top leaders political power - if not done by the campaign before that." At the 19th party congress in 2017, five of seven members on the Politburo's supreme Standing Committee - all except President Xi and Premier Li Keqiang - are scheduled to retire, having reached or passed the age of 68. China's top team by convention serves a maximum of 10 years, with a reshuffle at the halfway mark that signals the next party head and sees new members of decision-making bodies picked.

Societe Generale SA and Hang Seng Bank Ltd don't see growth re-accelerating until 2020 and Guosen Securities Co estimates it will take until 2025 for the next year-on-year pick up in the pace of expansion. Societe Generale's Paris-based China economist Yao Wei estimates growth will slide to 5 per cent in 2019.

"We don't have an official forecast for 2018 yet, but my sense is that it will be up slightly from the 2017 rate," said Patrick Franke, an economist at German savings bank Helaba in Frankfurt. "The trend is still downward, however. Medium-term, China is heading for 5 per cent or lower." Doubts over the accuracy of China's economic data persist. In the third quarter, for example, China reported growth of 6.9 per cent. One growth proxy designed by Capital Economics Ltd in London recorded growth at 4.4 per cent while another by Barclays Plc estimated growth of 5.2 per cent.

BLOOMBERG