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Outlook on 2017 Economic Situation | Seek Progress in Stability and Increase "Golden Content" of Growth

Submit Time:16-03-2017 | Zoom In | Zoom Out

Author:Zhang Liqun | Source:China Comment


The 2016 Central Economic Work Conference set out comprehensive arrangements for the economic work in 2017, with particular emphasis on the fact that the general principle of seeking progress in stability is an important principle for governing the country and a methodology for accomplishing economic work. It is of particular significance to implement this principle in 2017. 

I. China's economic and social development has been facing unprecedentedly severe challenges since the international financial crisis 

1. Economic downward pressure continued to increase. 

The 2008 international financial crisis profoundly changed the external environment of China's economic development. As a consequence of this, China's export growth declined and foreign trade situation was grim. According to the data published by the General Administration of Customs, in 2015, China's exports amounted to RMB 14.14 trillion, down 1.8%; in the first 11 months of 2016, exports reached RMB 12.47 trillion, down 1.8%. 

From the domestic perspective, years of accumulation of urbanization contradictions increasingly restricted the upgrading of the consumption structure dominated by housing and transportation and inhibited domestic demand growth. For a variety of reasons, infrastructure, basic public services and advantageous industries were more concentrated in large cities. This led to accelerated saturation of population in large cities and less population in small and medium-sized cities. This pattern was not conducive to the development of real estate and automobile industries. 

Prominent contradictions that impacted the real estate development lied in difficulties in access to land and selling houses. Given the flow of population to cities, demands for buying houses were mainly concentrated in large cities, attracted more and more real estate enterprises to large cities where they bought land and built houses. With the continuous and rapid expansion of development activities, shortage of land resources and difficult access to land became increasingly prominent in large cities, forcing real estate enterprises to develop and build houses in small and medium-sized cities, which in turn made it difficult to sell houses in small and medium-sized cities. In the case of dilemma, after 2012, real estate development and construction cooled substantially, and growth of real estate development and investment declined from 27.9% in 2011 to 1% in 2015, which had a direct impact on the growth of fixed asset investment. 

These urbanization contradictions also limited the development of the automobile industry. At present, Tier 1 cities' capacity to accommodate automobiles nearly reached the upper limit. Traffic congestion was extremely serious in cities having a population of more than 10 million. Beijing, Shanghai, Guangzhou, Tianjin, Chongqing and Hangzhou imposed restrictions on the purchase of vehicles, and some cities were envisaging relevant policies. It is estimated that these measures would reduce demands of about 2 million vehicles in the automobile market. 

Export and investment are important factors that have stimulated China's economic growth for a long time. Significant decline in the growth of the two factors will lead to fewer orders of export-oriented enterprises, heavy chemical industry, equipment manufacturing industry and energy industry, more difficulty in selling industrial products, lower rate of operation, lower utilization of production capacity, and increasingly higher economic downward pressure. 

2. The level of market demand declined, resulting in profound changes in the development environment for supply-side enterprises. 

Enterprises vied more fiercely for orders, making them shift their attention from the quantity of production to product quality and benefits. Demand choices grew as the demand level fell. On the one hand, the market changed from the seller's market (where transactions are dominated by sellers) to the buyer's market ((where transactions are dominated by buyers); on the other hand, after people earned more income, they had higher demand for the quality of life. These changes in market demand will force optimization and upgrading of the supply structure and the industrial structure, and promote merger and reorganization of enterprises and the relative concentration of production, so that emerging industries, service industries, small and micro businesses can play a more prominent role. Small, intelligent and professional production has become a new feature of industrial organization. 

3. The comparative advantages of China's productive factors are changing. 

In the past, cheap labor cost was the biggest advantage, and these laborers could quickly turn into productive forces once technology and management were introduced. Nowadays, due to the aging of population, reduced surplus labor of agriculture, and weakened driving force of scale of productive forces, the economic growth must rely more on the improvement of human capital quality and technological progress, and innovation must be put in place as a new driver of development. In addition, given greater constraints on resources and environment, we must foster a new model of green, low-carbon and cyclic development to meet the people's expectation for a good ecological environment. 

In summary, after the international financial crisis, domestic and international conditions for China's economic development have undergone profound changes. These changes not only led to increasingly higher economic downward pressure, but also forced China to speed up the adjustment and improvement of the supply structure and level and accelerate the transformation of economic development model. But corruption and the existence of some vested interests hindered the reform process in some key areas. All these phenomena show that China's economic and social development is facing unprecedentedly severe challenges. 

II. With our commitment to the general principle of seeking progress in stability, China has constantly made positive progress in response to the severe challenges 

In the face of the grim situation, the Party Central Committee has established the general principle of seeking progress in stability, and strived to stabilize growth, adjust the economic structure, change the growth model, comprehensively deepen the reform, fight corruption unswervingly, and rule the party strictly. After several years of sustained efforts, we have initially secured stable and positive development in all aspects. 

1. Consumption continued to maintain a steady increase of about 10%. In the first 11 months of 2016, the total retail sales of social consumer goods nominally grew by 10.4% year on year; consumption contributed 71% to economic growth in the first three quarters, an increase of 13.3 percentage points over the same period last year. In the first three quarters, 10.67 million people were newly employed in urban areas, accomplishing the annual employment target ahead of schedule; the per capita disposable income of the whole country increased by 6.3%, which basically kept pace with the economic growth. Taking into account the employment and income situation, it is expected that in 2017 consumption will continue to maintain steady growth and play a stable role in supporting the economic growth. 

2. Infrastructure investment continued to maintain high growth. In the first 11 months of 2016, infrastructure investment continued to grow rapidly by 18.9% year on year, and its role as an investment growth stabilizer was increasing. In terms of the project reserves, commencement and financial support, it is expected that infrastructure investment will continue to maintain high growth in 2017. 

3. Real estate investment is expected to maintain steady growth. In the first 11 months of 2016, investment in real estate development grew by 6.5% year on year, up 5.5 percentage points over 2015. Since the first quarter of 2016, overheated real estate investment occurred in some places, and instability and unsustainability were seen in market sales, the area of new housing construction, land acquisition and so on. After that, through timely implementation of city-specific regulation and control polices, overheated real estate investment was initially controlled, which helped real estate investment maintain steady growth. The development of real estate in China relies on the continuous progress of urbanization. In recent years, the pace of new urbanization has accelerated. Following the constant flow of people to Tier 1 cities, people are also flowing to a number of Tier 2 cities at a faster speed. With the help of the development of urban agglomerations, some Tier 3 and Tier 4 cities are getting more attractive to people. It is expected that real estate investment will maintain a steady growth trend on the whole in 2017. 

4. The decline trend in the economic benefits of industrial enterprises was brought to end, proving the evident effect of transformation and upgrading. In the first 11 months of 2016, the profits achieved by industrial enterprises above designated size grew by 9.4% year on year, representing a significant improvement over the same period last year. Among the 41 industries, total profits of 30 industries increased year on year. Profits of coal mining and washing industries increased by 156.9% year on year; profits of ferrous metal smelting and rolling processing industries increased by 274.7%; profits of non-ferrous metal smelting and rolling processing industries increased by 37.4 %. This shows that driven by the growth in infrastructure and real estate investment, market demand recovered and began to play a role in boosting enterprise sales and business activities. As a result, growth of manufacturing investment stopped falling and began to rise. This trend is expected to develop further in 2017. 

Amid the trend of steady consumption and stable rise in investment, growth of domestic demand is expected to be generally stable in 2017. Although the external environment for exports is still not optimistic, exports are expected to stabilize at a low level in 2017 by taking into account the low baseline, the prominent effect of the export stabilization policy, the transformation and upgrading that support export competitiveness and other factors. In consideration of these demand factors, China's economic growth in 2017 is expected to be roughly the same as that in 2016, and the price rise will be slightly higher than that in 2016. 

To sum up, the commitment to the general principle of seeking progress in stability has allowed us to make steady progress and achieve new achievements constantly in the face of unprecedentedly severe challenges, thus economic and social development has been getting better. 

III. We should seek progress in stability and increase the "golden content" of growth 

The Central Economic Work Conference stressed that the implementation of the general principle of seeking progress in stability is of particular importance to our work in 2017, and made it clear that stability is the core and the big picture, based on which we should strive to make progress in key areas by striking a good balance between stability and progress. This requires us to further grasp the dialectical relationship between "stability" and "progress", pay more attention to handling the conditions of "stability" and the degree of "progress", and accurately implement all tasks. 

Under the general principle, the Central Economic Work Conference proposed that the basic idea of macroeconomic regulation and control in 2017 is to continue to implement a proactive fiscal policy and a prudent monetary policy. The fiscal policy should be more proactive and effective, and the budget arrangement should be adapted to the promotion of the supply-side structural reform, the reduction of tax and fee burdens on enterprises, and the of corporate tax burden, and the guarantee of people's livelihood needs. The monetary policy should remain prudent and neutral, be adapted to the new changes in the way of money supply, adjust the monetary floodgates, smooth the channels and mechanisms for monetary policy transmission, and maintain the basic stability of liquidity. In terms of "progress," the Central Economic Work Conference stressed the need to adhere to the main line of supply-side structural reform and deepen the implementation of the five key tasks of "depleting stocks, cutting production overcapacity, deleveraging, reducing costs and bolstering weak spots". 

In accordance with the arrangements of the Central Economic Work Conference, we believe in 2017 China's economy will quickly embark on a new path featuring stable development, high "golden content" of development, and more benefits brought to the people. 




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