Editor's note: The World Economic Forum will be held in Davos, Switzerland, from Jan 17 to 20. The prospects for the Chinese economy and how it will intertwine with the global economy against the backdrop of increasing uncertainties will be among the topics to be discussed at the forum. We interviewed international experts to share their outlook on China in 2017.
1. China's Central Economic Work Conference said the country will continue to push supply-side structural reform in 2017. How do you assess China's achievement in that aspect so far? What are the most urgent tasks that China must carry out this year in order to push forward its structural reform?
2. Based on IMF forecasts, it is calculated that China's contribution to global growth this year could be more than 30 percent, much higher than that of the United States. How do you look at China's role as a key driver of the world economy? Will its economic restructuring and expected growth slowdown this year affect that role?
3. The world economy is faced with uncertainties, such as expected trade frictions, interest rate hikes by the Fed, and elections in Europe. Against that backdrop, how do you foresee China's growth prospects next year? What are your policy suggestions for China maintaining stable growth while accelerating reform this year?
Duncan Freeman, research fellow of the EU-China Research Centre, College of Europe in Belgium
A1 China has begun to lay the groundwork for tackling supply-side reform, and has made progress in major problem sectors like steel and coal by reducing capacity. Resolving the problem of supply is crucial not only for the domestic economy, but also for China's external economy. The key long-term task is not simply to remove overcapacity, but whether the structural factors underlying the creation of overcapacity can be resolved. This will require reform of the existing incentive system that encourages investment in sectors where overcapacity exists. This will include the financial and also administrative incentives that have encouraged support for economic sectors with oversupply.
A2 Following the crisis in the US and the European Union in 2008, China has been the largest single contributor to global growth, much bigger than any other major economy. Even with slower growth in China, it will continue to be the largest contributor to global growth and will thus be a major factor in maintaining economic stability. A somewhat slower growth rate will be less important than structural changes. The restructuring of China's economy will change how its growth impacts the rest of the world. The reduction of investment in traditional key sectors will reduce demand for the inputs they require, while consumption growth will create new areas of demand. The increasing role of services in the economy is already having an impact on its external balances, as service imports are rising rapidly, including tourism.
A3 Since the crisis, China's growth has been increasingly dependent on internal rather than external factors, especially since the importance of exports for the Chinese economy has declined. The key to maintaining China's internal growth will be to ensure that domestic economic conditions are improved. This will require continued policy focus to deal with underlying structural problems in the Chinese economy. However, China will face major external interlinked economic and political challenges in the coming year as the global economic system increasingly comes into question. The challenges in the major economies in the US and the EU, manifested in events such as the election of Donald Trump and Brexit, will raise questions about the sustainability of the existing economic order. For China, a key policy question will be its role in the global system. The challenge will require responses at the multilateral and bilateral level, but will also place demands on China's domestic policies, as the importance of the Chinese economy will make domestic policy decisions increasingly critical to the sustainability of the global system.
Fredrik Erixon, director of the European Centre for International Political Economy in Brussels
A1 China has made significant progress, but still has a challenging reform program ahead. Like other leading economies, it needs to expand the space in the economy for competition, innovation and entrepreneurship. It is investing a lot of resources in order to raise productivity, but such investments are increasingly hindered by the way markets work and are regulated. The transition from industrial production to services would be helped by reforms that would open up the services sector for more competition. Finally, the financial sector needs to be subject to new and better rules－preferably anchored in a new macro framework－that help to stabilize the financial sector and deter misallocation of resources into real estate and other sectors.
A2 China's role for global growth will remain strong, even if it will moderate a bit as some other large economies notch up their growth. The most important thing about China for the world economy is that its growth is sustained over a long period of time, and restructuring the economy will support that.
China's rates of economic growth have already come down substantially from the levels it had some years ago, and that decline affected, of course, the world economy. But it was possible for other countries to adjust, and that should work in the future as well, even if it means that some countries with strong exports to China will see growth declining further. Generally, every economy in the world will have to adjust to the decline of the global growth model of the past 30 years－driven predominantly by global trade and investment－and move into a new model based more on innovation.
A3 China is in a structural growth slowdown and I expect that, even if it has stabilized in recent years, there is risk that it will decline further as China is confronted with strong economic headwinds, both domestically and from abroad. China has set out the right type of reform track in its past five-year plans, and they take aim at reforms that will help to propel more competition, a greater role for the private sector and an expansion of the services sector.
