Economic Outlook and the Impact for Business Go back »

2019-01-10 | All chapters

From left to right:

Tom Rafferty, China Principle Economist, The EIU (moderator)

Bert Hofman, Country Director, World Bank Group

Xu Sitao, Chief China Economist, Deloitte

Zhang Weiying, Boya Chair Professor of Economics, National School of Development, Peking University

The third and final panel covered the economics of reform and the projected effects that current trends will likely have on the market. Speakers agreed that the economy has faced a multitude of setbacks, all coming at once. The combination of the natural slowdown of China’s growth coupled with concerns on rising debt alongside the US-China trade conflict and scepticism from abroad have compounded into a major challenge for the current administration.

Panelists discussed the status of China’s reform agenda with an emphasis on the intentions of China’s leadership. Concern was expressed about the intense control on information coming from the government over the last year. For the first time in decades, the government has limited the release of economic data and has worked to enforce ‘discipline’ to clamp down on public disagreement about national economic policy. This, coupled with a perceived increase in support for the state-owned sector, has rattled the private sector. While some argued that messaging from top leadership that calls for greater support to private firms may help mitigate this, one speaker argued that this message isn’t being taken seriously at the working level. They went on to say that entrepreneurs are the most optimistic people in the country, and that if they are pessimistic, then concerns are much greater than originally thought.

Regarding the economic outlook, panelists started by examining consumption patterns and projections. They expect to see generally stable consumption rates overall, but noted that shifting demographics could be disruptive to certain sectors, ie. Macro shifts towards services for the elderly may come at the expense of sectors that focus on children, but that the net effect for the whole economy will be relatively stable. One area of concern was real estate which was identified as a wildcard for stability. All agreed that while the government would provide some supportive fiscal policy, there won’t be any massive stimulus injections akin to the ones after the financial crisis. One speaker explored ways that consumption can be raised through structural changes in the economy while also reforming social welfare systems. Views were mixed regarding deleveraging, with one speaker announcing the campaign as functionally abandoned while another argued that the campaign has become more selective in addressing the riskiest of debts rather than debt as a whole.

The panel ended with a brief discussion on the US-China trade conflict, with some arguing that the effects are widely overstated, while another posited that current models fail to capture the probable knock-on-effect that the conflict will likely bring if further escalated. All agreed that reactions from businesses are chiefly just accelerations of plans to relocate some manufacturing to cheaper countries, but that such plans were already in the pipeline. Views were mixed about whether or not the US and China would conclude a deal within the 90-day timeframe established in early December. 

See the other two panels:

Headwinds or Tailwinds? Deepening Reform in the Trade War Era, the first panel, examined the effect that the US-China trade conflict and rising tensions elsewhere are having on China’s economic reform and opening up agenda.

China's Innovation Drive: Top-Down and Bottom-Up, the second panel, explored the comparative value of the competing approaches to innovation in China that are coming from the state-directed and market-driven ends of the spectrum.