2017.04.2118:31:00UTC+00China’s Real Gdp Growth Likely to Decelerate Further on Ongoing Structural Economic Transition

The Chinese economy began 2017 with strong momentum as implied by recent high-frequency indicators from the services sector and the industrial sector. But the authorities have stressed financial stability in the rapid economic growth and cut this year’s real GDP growth target slightly to about 6.5 percent from 2016’s projection of 6.5-7 percent.

Policymakers stated that increased focus will be on deleveraging and managing financial risks connected to non-performing assets and high corporate level, shadow banking, bond details and the heated real estate market. The real GDP growth of China is expected to continue slowing down gradually due to the ongoing structural economic transition.

“We expect the nation’s output gains to slow toward 6 percent y/y in 2018”, said Scotiabank.

In spite of the slowdown, the growth of about 6 percent is significant and will continue to increase the nation’s economic importance globally. China’s government will carry on with its huge fiscal injections in infrastructure, while the overall activity will be greatly driven by China’s consumer and the services sector. Consumer spending is underpinned by swiftly rising incomes. The number of upper middle-class and the affluent households is likely to reach 100 million by the end of the decade.

Irrespective of China’s gradual structural change and the rise of the consumer, the external sector continues to be greatly pertinent as China’s exports are equivalent to nearly 20 percent of GDP. The U.S. is China’s key trading partner. China ships one fifth of its exports to the U.S. Thus, any changes in trade policy towards increased protectionism in the U.S. such as high tariffs on Chinese goods exported to the U.S. will have a negative effect on China’s economic performance.