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January 3, 2018

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What to expect for China’s economy in 2018

ONCE again it is time for resolutions. For China, which sailed through a difficult year safe and sound, and with government promises of a more efficient and open economy, the country is ready to start a new journey.

Despite some turbulence along the way, China’s economy ended 2017 stronger than expected: headline growth is sure to meet targets, financial risks are being contained, the property market is cooling down, and key reforms are making steady progress.

So far, the world’s second-largest economy has proved to be a key engine for global growth. Will its role continue to improve, and how will China navigate troubled waters? The following are some key areas to watch.

Deeper supply-side reforms

China’s wide-ranging structural reforms, designed to improve the supply side of the economy, have produced desired outcomes in 2017 and are expected to gear up in 2018.

In the battle against overcapacity, a major task for the reforms, China has accomplished its plans to slash steel production capacity by around 50 million tonnes and coal by at least 150 million tonnes last year.

Progress has also been reported on the other four fronts, including deleveraging, destocking, lowering costs and enhancing weak links.

The annual Central Economic Work Conference last month pledged that China will press ahead with supply-side structural reform in 2018 with more efforts to improve economic quality.

Stricter regulation

In what some dubbed the “toughest year” for China’s financial industry, authorities have taken real steps to curb widespread malfeasance in the rapidly expanding financial market.

Banks, insurance and securities companies have received heavy fines for flouting market rules, and internet finance companies once prospering on easy and fat profits are having a difficult time surviving with the enhanced rules.

The hardline stance is set to continue as senior leaders agreed to maintain the resolute crackdown on irregular and illegal activities in the financial sector to forestall risks.

Although a statement released after the key economic meeting did not mention deleveraging, financial risk control is still a priority given that defusing major risks is one of the three tough battles that the country has vowed to fight.

Escalating war on pollution

There is no better gauge than the clear and blue skies in Beijing this winter to demonstrate the effects of China’s anti-pollution drive.

Once a rarity, blue winter skies are no longer a luxury in Beijing due to a government campaign for increased use of clean fuel for heating and tough punishments against polluting enterprises.

Pollution control has also been listed as one of China’s “three tough battles” for the next three years, targeting a significant reduction in the emissions of major pollutants and an improvement in the overall ecological environment.

To win the battle, efforts should be focused on adjusting the structure of industries, strengthening energy conservation and making the skies blue again, according to the Central Economic Work Conference.

Real estate control to stay

In 2017, the property market, once deemed a major risk for the broader economy, cooled down amid tough curbs such as purchase restrictions and increased downpayment requirements as the government sought to rein in speculation.

With the market holding steady, Chinese authorities aim for a “long-term mechanism” for real estate regulation and a housing system that ensures supply through multiple sources and encourages both housing purchases and rentals.

In large and medium-sized cities, the government will step up the development of housing rental market, especially long-term leases. Meanwhile, reducing unsold housing will still be a priority for the third- and fourth-tier cities and counties.

A report from the National Academy of Economic Strategy predicted that the country’s property market should remain stable in 2018 if there is no major policy shock.

SOE reform quickens

Reforms of state-owned enterprises (SOEs) will also go into deeper waters in 2018 as the Chinese government expects them to play a bigger role in leading excess capacity cuts, keeping the debt ratio under control and driving high-quality economic development.

In 2017, up to 68.9 percent of the central SOEs were involved in mixed-ownership reforms, and authorities are reviewing plans for more to join the drive.

At the 19th National Congress of the Communist Party of China (CPC), the Chinese leadership pledged to further reforms to make SOEs “stronger, better and bigger,” and turn them into “world-class, globally competitive firms.”

The government will press ahead with stronger restructuring and deleveraging efforts, as well as furthering mixed-ownership experiments at more SOEs, authorities said.

Doors to open wider

The year 2018 will mark the 40th anniversary of China’s reform and opening up policy, and Chinese leaders have promised that its door to the world will only open wider.

China will increase imports and cut import tariffs on some products to promote balanced trade, according to the Central Economic Work Conference.

To give foreign firms greater opportunities in China’s booming market, a negative list approach to market entry, which states sectors and businesses that are off limits to foreign investment, will be expanded nationwide in 2018.

The country will also grant more power to pilot free trade zones and explore the opening of free trade ports, according to the 19th CPC National Congress.




 

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