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FEATURE STORY: China’s 2017 Economic Outlook
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China's 2017 Economic Outlook

By A. Laurence

BT 201703 FEATURE STORY 01At the beginning of the year there is a new set of forecasts from official Chinese state statistics to outsider financial and business opinions on how China's economy will fare in 2017. Various macro -and micro- economic considerations should be taken into account in addition to multiple opinions on how well or how not so well China's economy will grow. Overall, it appears that China successfully avoided a so-called 'hard landing' in early 2016 despite the equity tumult in January. However, a number of uncertainties are still doing rounds, such as what the actual gross domestic product (GDP) figures will amount to. While official figures are still positive that GDP growth will rise to 6.8%, others such as researchers at the China Social Sciences Academy assert that GDP growth will slip to 6.2% in upcoming year.

Other indicators of volatility and uncertainty will also be highly impactful of China's economic growth such as economic tensions between China and one of its largest trading partners the United States as President Trump continues to threaten a blanket 45% tariff on all Chinese goods entering the United States. But with the United States' withdrawal from the Trans-Pacific Partnership (TPP), China is now poised to lead an Asian regional trading bloc under the banner of the Regional Comprehensive Economic Partnership (RCEP) which may begin transactions towards the end of 2017. Overall, there are causes for concern, but also reasons to be optimistic for what 2017 holds for the Chinese shāngrén.

China's Trump Problem

There is no doubt US President Donald Trump has been extraordinarily hostile towards Chinese business leaders as a whole despite his deals with individual Chinese entrepreneurs. Nonetheless, now that he is president, he must come through on his campaign promises in order to maintain credibility and have a change at reelection among his 2016 coalition in the 2020 presidential election.

There is, of course, a huge debate surrounding the issue if Trump will take action on Chinese firms operating in the United States which will obviously have a negative impact on both Chinese and US companies alike. Nonetheless, there is some evidence to suggest that he will take some sort of action against China. He has already come through on a number of other campaign promises through the signing of several executive orders and while a 45% blanket tariff on all Chinese goods entering the US may not be the exact action he takes, do not expect him to simply make a symbolically hostile position towards Chinese businesses and declare victory against the Middle Kingdom. He just simply politically must-do-something and it is wise to expect that he will. Either way, it is a political risk that must be taken into consideration in 2017.

Yet, some think this is just posturing and will fade away with time. Other good news around the US is circulating as well. With investors excited about lower US taxes and US fiscal stimulus as can be seen with the recent surge in US stocks, some financiers like David Dollar at the Brookings Institution assert that a boom in US equities will spill over into Chinese growth as well. Additional infrastructure spending in the US is also poised to help Chinese construction firms which have a somewhat significant market share within the US.

BT 201703 FEATURE STORY 02TPP is Dead, Long Live RCEP

Speaking of unwise actions the new US president is taking, he also struck a decisive blow against US economic leadership in the Asian Pacific with the rejection of TPP. Now China has the ability to write the rules of trade as the creator and leader of RCEP. This will undoubtedly be a net positive for Chinese businesses in 2017 and the upcoming years as well.

While RCEP may take a while to get itself off the ground, the trade pact will allow for a larger umbrella of countries to engage in free trade, several of which were not members of TPP including South Korea, India, Indonesia, the Philippines, Cambodia, Laos, Myanmar, and Thailand. Furthermore, TPP members may be forced to join the trade pact like Australia and Japan, who wish to be able to freely trade with RCEP members. Overall, RCEP will allow for China to lead in one of the world's largest free trade zones making up 46% of the world's population and 26% of global GDP.

Chinese GDP Figures

hl 03As previously mentioned, there is still quite some debate about the actual level of growth China will enjoy in 2017. Furthermore, these figures are highly dependent upon the nefarious economic sanctions taken by the US and the possibility of trade war between the world's two largest economies. However, with all variables holding constant, the figures stand somewhere between 6.2% and 6.8%. Members at the Central Economic Work Conference held in Beijing estimated GDP growth will be between 6.3% and 6.4% while economists at Bloomberg assert a figure closer to 6.5% is likely because of rising industrial levels, the acceleration of retail sales, and a weaker yuan. Overall, a monthly Bloomberg survey among hundreds of financial and business analysts sees China's GDP forecast rising from 6.2% in mid-2016 now up to 6.5% throughout 2017.

Another boon for the economy is the large degree of stimulus the government has injected into equity markets and state-owned enterprises throughout 2016. While it appears that a large selloff of US treasuries was made in order to fund this stimulus, there is little evidence to directly point toward this. Nonetheless, an educated assumption can be made that this is the case. Furthermore, it is an extremely good sign that this is the case because it indicates officials' willingness to take major steps towards bolstering the economy in times of economic limitations.

The Bottom Line

Overall, China should look to 2017 with cautious hope. Major global recessions occur once out of every eight years and it hasn't been since 2008 in which the last one sent shockwaves throughout markets. Nonetheless, GDP figures are looking positive as China appears to have avoided a hard landing. The US will now become an economic aggressor towards China, but once US officials realize the importance of China's economic prosperity to the prosperity of the US economy, these threats will simply stay as idle words on the lips of a declining economic power.

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