China Daily Weekly - 02.08.2019

ByHUANGYONGFU

C

hina’sGDP growth slipped

slightlyto 6.2 percent

year-on-yearinthe second

quarter of 2019, down from

6.4 percentinthe firstquarter,

accordingtothe NationalBureauof

Statistics.

Investments showed weakening

butwere stable onaquarterly basis.

Fixed-assetinvestmentgrowth

increased 5.8 percentinthe first

half ofthe yea , down from 6.3 per-r

centinthe firstquarter.

Although manufacturing-invest-

mentgrowth slowedto 3 percent

inthe firsthalf from 4.6 percentin

the firstquarter, high-tech services

investmentrose 13.5 percentyear-

on-year duringthatperiod. Interms

of foreigntrade,afterthetradetalks

withWashington broke downand

itthreatenedt oapplyhighertariffs

onChinese goods,China’s exportsto

the United States slowed.

However,China’stotal foreign

trade expandedat astable pace of

3.9 percentyear-on-yearinthe first

half ofthe year. Trade growthwith

theBeltand Road countries was

even more encouraging, growing by

9.7 percentyear-on-year,according

totheGeneralAdminist rationof

Customs.

Consumption contributed 60 per-

centof economic growthinthe first

half, down from 76 percentinthe

whole of 2018.

Recorded inthe secondquar-

terarean increase of 8.4 percent

year-on-yearinretail salesandan

increase of 17.8 percentyear-on-year

in online sales, 2.5 percentage points

fasterthanthe previous period.

Admittedly,the fallouts fromthe

ex ternalanddomestic economic

situations have causedChina’s

economyto undergoaperiod of

volatility, withtheGDP growth

inthe secondquarter its slowest

in recentyears. However,China’s

economy continuesto grow ona

sound footing withinareasonable

range, withincreasing innovation

and declining energy use.

Whilethe deceleration ofChina’s

economic growthha been cs aused

by various factors,thetrade dispute

withthe US is neverthelessakey

factor dragging onChina’s economy.

Althoughat the OsakaG20 Summit

thetwo heads of state brokethe

impasse intrade negotiationsand

thetwo sidesare now in contact

again,the recentUSarms salesto

Taiwana ndBeijing’s retaliation

have fueled worriesaboutwhether

thetwo nations can resolvetheir

differencesand inkadeal.

Toavoidthe potential burden

ofthe proposed 25 percentduties

on $300 billion ofChinese goods

which mightbe imposed, some

foreign manufacturersare shifting

production outofChina, fueling

further worriesaboutlayoffsand

declining demand.

But,the US economy is not

exemptfromthetradedispute.As

anxiety overan economic down-

turn grows, many people inthe

USare gloomy; manufacturing

companiesare waryand business

confidence istumbling. Investors

are nervousatone ofthe riskiest

markets for corporate debt, which

has been soundingthealarm.

For many weeksthe yield on

three-monthTreasury bills has

exceededthatofthe benchmark

10-yearnotes byas mucha 0.259s

percentage point,the mostsince

May 2007 beforethe financial crisis,

oftenaharbinger ofthe economy

heading forarecession.

Some economists suggestBeijing

roll outbroad-based measuresto

boostbusiness confidence, suchas

additionaltaxcuts, infrastructure

investment,easier creditconditions

for local governments,and lower

interestrates. Specific measures

proposedtost imulateconsumer

spending include subsidies forthe

purchases of cars, homeappliances

and other big items,and easier lim-

its on home purchases in big cities.

However, policymakers should be

extremely carefulaboutthe likeli-

hood oftheabove fiscaland mon-

etary incentives inflatingthe level of

public debt, which isalreadyathigh

levels. International experience from

developing countries showsthat

unsustainableand growing govern-

mentdebtoften leadstoamajor

economiccrisis downthe road.

Toalleviatethe struggles of com-

paniesand combat the downward

pressure on economic growth,the

governmentearlythis year decided

toslash roughly 2trillion yuan($291

billion) intaxesand fees, which

includes reductions onthe value-

addedtaxrate from 16 percentto13

percentandthe employer contribu-

tion ratetothe social-security fund

from 18-20 percentto 16 percent

(withsomevariationa crossregions).

Those were ontop ofapreviously

announced reduction inthe corpo-

rate incometax.

The policy move was followed

byaboostin business sentiment,

apickup in consumer spending

and businessactivityand recovery,

although modest,inthe second

quarter. However, ithasaddedto

the risk ofapotential debtcrisis.

The loss of governmentrevenue

of some 2trillion yuanthis year

alone,about2.1 percentofGDP, will

certainly ra isethecentral govern-

ment’s fiscal deficitand debtover

the mediumterm.

Together withthe liabilities

implicitin closingthe funding gap

inthe social securitysystemand

massive local-governmentdebts,

overall public debtcould grow

much larger, potentiallyapproach-

ing or exceedingthealertlevel ina

few years.

At this criticaltime,the follow-

ing policy mix mightbe more fruit-

fulandless risky.

The firstistointroduceanew

digitaltaxalong withtaxcuts, fol-

lowingthe example ofFranceand

otherG7 countries.

This move could beasubstantial

boostto governmentrevenueand

contributetothe globalattempts

to improve global governance over

tech companies.

The second istotakeactionsto

cleanupthe financialsystem while

relaxing creditcontrols. Some gov-

ernmentprograms could be setup

to help banks dumptoxicassets,as

the ill healthofthe banking system

with huge nonperforming loans

sitting on banks’ balance sheetsis

apotential source ofadebtcrisis.

Banks could sell badloans outright

or packagethese intoaspecial-pur-

pose vehiclethatissues securities

backed bythe loans.

Once banks remove mostofthe

loans fromtheir books, eventhough

they retain partofthe riskthrough

new securities,they have sufficient

capitaltoback fresh lendingtothe

economy. The governmenthasto

do moretomake creditgrowth

sustainable whenthe economy is

getting flooded with credit.

Theauthorisaseniorfellowatthe

ICCoftheNationalDevelopment

andReformCommissionofChina.

Theopinionsexpressedherearehis

ownanddonotnecessarilyreflect

thoseoftheNDRC.

Policymakersmustensurefiscalandmonetaryincentivesdonotinflatepublicdebt

ByDENNISMUNENE

C

hinahas risen fromapoor

developing country into

an economic powerhouse

withinaperiod of 40 years.

This massive growthwasrealized

afterBeijing decidedto embrace

foreigntradeand investment,and

implementfree marketreforms in

1978.

Following inChina’s footsteps,

Africamade historyonMay30

whentheAfrica-ContinentalFree

TradeAreat ookeffect.

TheAfCFTAisafreetradeagree-

mentamong 54 ofthe 55African

Union nations —Eritreahasnot

joined —that aimsto boostintra-

Africatrade, grow local business,

spur industrializationand create

more jobs forthe continent’s young

population.

Foralongtime,African countries

have beentrading wit heachother,

butstatistics showthatonly 15 per-

centofAfrica’s exportsgotoother

African countries.

Underthe guidance oftheAfri-

can Union,theAfCFTAwill gradu-

ally eliminatetariffs on goodsand

servicestraded betweenandamong

Africannations, withtheaim of

boosting intra-Africatradeand

capitalizingonthe growing market

acrossthe continent.

AccordingtotheAfricanDevelop-

mentBank, freetrade will leadtoa

netincrease of income byabout$2.8

billion per year.Dezan Shira&Asso-

ciates (China),acompanythatpro-

vides legal,taxand operationaladvi-

sory servicesto corporate investors,

ha projecs tedan increase ofAfrica’s

netreal incometoapproximately

$37 billion because of reducedtrade

barriers undertheAfCFTA.

The United NationsEconomic

Commission forAfricapredicts

that theAfCFTAhasthe capacity

to increase intra-Africatrade by

around $50 billionto $70 billion by

2040. The United NationsConfer-
      ence on TradeandDevelopment
      envisionsthatreducing intra-Africa
      tariffs could leadto $3.6 billion in
      welfare gains onthe continentdue
      to increased productionandafford-
      ability of goods.
      However,torealizeAfrica’s dream
      of prosperitythroughashared mar-
      ketand full implementation ofthe
      African Union’sAgenda2063,the
      continentneedsto be well connect-
      ed with modern infrastructure.The
      InternationalAir TransportAssocia-
      tion hassaidthat Africarepresents
      the second fastestannual growth
      marketinthe world in passenger
      aviation,at4.6 percentper year.
      The IATAsaysthatby 2037,
      Africawill seeanadditional 200

millionair passengers, bringingthe

totalt 334 million. Too accommo-

datethe increased number, opening

the bordersthrough modern ports,

roadsand railways is essential,

inadditionto increasing cultural

developmentand boostingtrade.

TheChina-proposedBeltand

RoadInitiative hasalready expand-

edand linkedtransportation

networksand markets, improved

production capacit y,andfacilitated

thetransitof goods, capital, energy,

rawmaterials, informationand

peoplearoundthe world. Today,

approximately 22African countries

are involved inthe initiative.

TheBRI hasthe potentialto

acceleratethe rate of economic

integrationand developmenton

the continent,and encourage coun-

triesto coordinateeconomic policy

and improve regional collaboration.

Asanactive partner inthe imple-

mentation oftheBRI,Chinahas

made effortstoestablish freetrade

developmentzones inAfrica.

TheAfCFTA,along withtheBRI,

will boostAfrica’s manufacturing

capacityand increasetradeamong

Africannations,leadingtoarobust

marketwithalabor force ofabout

1.3 billion people — placing it

amongthe world’s largestfreetrade

markets.

ForAfricatorealize its full poten-

tialand effectively implementits

freetradeagreement,the other

African countriesthat are yettobe

partof theBRIneedtofast-track

their decisionto jointhe initiative

in orderto increase physical con-

nectivity, which is vital fortrade.

Theauthorisaseniorpolicyadviser

attheAfricaPolicyInstitute.The

viewsdonotnecessarilyreflectthose

ofChinaDaily.

BeltandRoadInitiativehelpscountriesdeveloptheinfrastructurevitalfortrade

ConnectivitykeytoAfricanprosperity

Stimulusprogramsmust besustainable

22 COMMENT August 2-8, 2019 CHINA DAILY GLOBAL WEEKLY