Preparing for the paradigm shift
Economic growth in China
(% change)
financing (the China-specific terminology used to describe shadow-banking
activities) grew to Rmb17.8trn (US$2.7trn) in 2016. Although it will be mindful that
China’s debt addiction is increasingly harmful, the government will still be relying
on stimulus spending to deliver stable economic growth in 2017. This will mean
continued government spending on major infrastructure projects, such as the high-
speed train network. Government funding will also support key industrial objectives,
such as incentives for electric-vehicle manufacturing and robotics, in line with
“China 2025” targets.
GROWING APART
Balancing credit growth with economic stability is likely to mean more
micromanaging of financial risk within the conventional financial sector, and
cracking down on shadow-banking schemes that are egregiously risky, such as
peer-to-peer lending. Stricter “window guidance” for bank lending, and tightened
regulations for foreign-exchange approvals and overseas direct investment, will
result in tougher operational challenges for business, as will rising producer prices
and overall credit costs.
Economic policy discussions in China are currently focused on “supply-side
structural reform”, which encompasses squeezing out overcapacity (in heavy-
industry sectors as well as destocking housing inventory) and deleveraging. The
government has been exploring mixed-ownership experiments, debt-for-equity
swaps and some reduction in industrial capacity, but this has been offset by
consolidation and mergers within state-owned enterprises.
Note. 2016 figures are estimates. All others are forecasts. Source: The Economist Intelligence Unit.
2016 17 18 19 20 2110
6
9
5
8
4
2
7
3
1
0
Real GDP
Gross fixed investment
Private consumption
Government consumption