China: Set to remain among global engines of growth - Scotiabank

China is set to remain among global engines of growth, yet real GDP gains will likely decelerate to 6% y/y by the end of 2019, according to Tuuli McCully, Research Analyst at Scotiabank.

Key Quotes

“Robust economic growth ahead of party congress

• China’s economic growth will remain reasonably sound through 2019 despite the fact that the pace is set to decelerate gradually. We estimate that the nation’s real GDP growth will average 6.7% this year and move toward the 6% mark by 2019. The moderate slowdown reflects the economy’s continued transition from reliance on credit-fuelled investment toward consumer-driven activity and it will put the Chinese economy onto a healthier and more sustainable footing. Despite the gradual deceleration, China will continue to be among the world’s growth outperformers and its significance in the world economy will continue to increase. We assess that while the economy has built substantial imbalances in recent years due to poor allocation of resources—such as credit—the country’s economic outlook is favourable enough for the government to meet its goal of doubling China’s 2010 GDP and per-capita income by 2020.
• China recorded relatively rapid real GDP growth in the first half of this year, with output expanding by 6.9% y/y. Accordingly, the economy will comfortably meet the government’s official 2017 growth target of at least 6.5%. We expect output gains to be smaller over the coming quarters on the back of the waning base effect of public spending, which was up by 21% y/y in the first half of 2017. The robust growth momentum so far this year has supported social stability and created a favourable economic environment for the 19th National Congress of the Communist Party of China, which will commence on October 18, 2017.” 

“Leadership change to spur structural reforms

• The 19th National Congress, which takes place only twice in a decade, marks the mid-point of President Xi Jinping’s 10-year term. The new composition of the Politburo Standing Committee—China’s top policymaking body—will be closely watched as up to five out of seven members of the committee are expected to retire this year due to the party’s unwritten age limits. The remaining two members are President Xi himself and Premier Li Keqiang. Among the expected retirees is President Xi’s close aide Wang Qishan who has been the leader of China’s rigorous anti-corruption campaign. The configuration of the new committee will determine how fast China’s economic liberalization will progress over the coming years.”