China can look on a good year for the economy in 2017: GDP growth increased slightly on the previous year to 6.9 per cent – for the first time in seven years the growth rate for the full year accelerated again. In the final quarter the growth rate remained stable on the third quarter at 6.8 per cent. The upswing firmed. The Chinese economy benefited above all increasingly from the buoyant global economy. After two very difficult years foreign trade was no longer a brake on economic growth in 2017, and in the final quarter it even made a positive contribution to growth.
Admittedly, in the second half of the year economic growth failed to keep up completely with the strong momentum of the first half of the year. The boost from state investments, which initiated the upswing in 2016, has slackened off further and in the private sector investment has recently been dampened by somewhat more restrictive financing conditions. In industry environmental protection measures by the Chinese government also curbed growth at the end of the year. But sentiment in the manufacturing industry remains good, and in the service sector has recently improved strongly. Chinese consumers have even been downright euphoric for several months now. These are good prospects for the year that has just started.
So China will probably also be able to achieve a stable growth rate in 2018. Above all the export industry should continue to benefit from the global economic recovery. Net exports will probably make another very positive contribution to GDP growth again this year. In addition, personal consumption expenditure is increasing. And finally if need be the Chinese government will react to any pronounced slowdown in growth with new economic stimulus measures. After all, Peking has an ambitious target: economic product is to be doubled in the current decade but this will require a real growth rate of at least 6.5 per cent in the next few years. Growth is unlikely to go much lower than this limit in the next few years and it will probably also be used again as the growth target for this year.
For the current year we therefore expect the GDP growth rate of 6.7 per cent posted at the turn of the year will remain little changed. This puts our forecast somewhat above the assessments of other China observers, who forecast a greater slowdown this year and next. But we do not believe that Peking will embark in the next few months on any major reform projects, which could dampen growth significantly. This was made clear at the latest at the party congress last November. So far the Chinese government has also proceeded very cautiously with the measures it has already instigated to combat high corporate debt. Thus the risks to stability remain heightened in the longer term, but the short-term economic outlook is positive. The Chinese government will possibly allow somewhat greater growth-curbing reforms in the coming year. For this reason, we expect somewhat lower GDP growth of 6.5 per cent for 2019.