[Review] China Economic Outlook 2017

Published on 2016-11-14

On Friday 4 November, the British Chamber of Commerce Shanghai welcomed Kelvin Lau, Senior Economist at Standard Chartered Bank, to provide a detailed forecast on China’s economic future as we rapidly approach the start of 2017.

EO 2017

Over the past year, projections on China’s economic future have alternated as the months have progressed. Highlighting the changing perspectives towards China’s economy, Kelvin alluded to just one factor that has largely remained consistent throughout the year: pessimistic projections of China’s economy. 

China’s ‘Hard’ Landing 

Kick-starting the presentation with an open-ended question, Kelvin asked members what they believed would be the biggest risk to China’s economy over the next year. One such risk highlighted was one that has occupied much of China’s economic commentary: whether China’s economy will suffer from a ‘hard landing’. 

Ruling out the likelihood of China heading towards a ‘hard landing’, Kelvin informed members that China’s economy is looking increasingly stable. With projections of China operating at 6.7% GDP in 2017, global onlookers can rest assured that China’s economy is unlikely to dive into a ‘hard landing’ of sub-5% GDP growth.

Drivers of Recovery

The gradual shift from a shaky beginning to a stable end raises the question: what are the key drivers maintaining China’s recovery?

Highlighting investment as a key factor of China’s economic recovery, Kelvin navigated members through the three most activesectors producing the highest rates of investment: infrastructure, real estate and manufacturing.

Examining the issue further, Kelvin then explained which specific types of funding are producing the highest portions of investments before sharing insights on how these trends will continue in 2017.

China’s increasing reliance on funding through SOEs sparks doubt as to how sustainable this model will be as the years go on.

Fiscal Policy and the RMB: What to Expect?

The latter part of Kelvin’s presentation focussed on China’s fiscal policy and the future of the RMB.

Kelvin addressed key concerns relating to a potential debt bubble.  In doing so, Kelvin outlined three possible outcomesregarding how China’s debt-GDP ratio could change over the next five years.

Providing an overview of the relationship between the RMB and other key global currencies, Kelvin explained the intricate and important relationship that the RMB shares with the US Dollar.

In light of the current geopolitical climate in the United States, members were interested in learning how the US Presidential election result could affect the RMB. Sharing forecasts on the RMB’s short- and long-term future post-election, Kelvin shared with members his not-so-bearish outlook for the RMB.

With both positive and negatives commentaries of China’s economy co-existing, it remains to be seen how China’s economic future will pan out as we enter 2017.