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SINGAPORE, April 6, 2018 – China’s economy grew strongly in 2017, driven by expanding consumption, exports and services while near-term domestic risks to growth and domestic macroeconomic stability have receded according to the Annual Consultation Report on China published by the ASEAN+3 Macroeconomic Research Office (AMRO) today. The report was prepared on the basis of AMRO’s Annual Consultation Visit to China in August-September 2017 and data availability as of January 26, 2018.
On the demand side, growth was sustained increasingly by consumption, and less by investment. On the supply side, growth drivers include expanding industrial production partly on the back of incentives from rising prices and higher profits, and a growing services sector. AMRO projects that GDP growth is expected to be 6.6 percent in 2018, with momentum sustained by further expansion in private consumption, services, as well as booming e-economy.
The fiscal stance is assessed to be expansionary with greater emphasis on supporting structural adjustments, mainly reflecting higher spending on items related to boosting potential growth and strengthening the social safety net. Continued efforts to manage local government debts have resulted in declining local government debt-to-GDP ratio and less reliance on bank loans and shadow banking borrowing.
Monetary policy has focused on safeguarding macro-financial stability. While monetary policy remains neutral, monetary conditions have been tightened to safeguard macro-financial stability. Regulation in the financial sector have been strengthened significantly and the leverage in the financial sector has started to decline although risks need to be further mitigated.
Near-term domestic risks to growth and macroeconomic stability have diminished, backed by a rebound in growth and corporate profitability, as well as stronger measures that resulted in curbing overcapacity, financial and corporate leverage and property market speculation. However, high corporate debt in some sectors with declining debt repayment capacity and profits, continues to be a risk. With regard to local government debt, implicit guarantees and illicit borrowing remain a concern.
Mitigating macroeconomic and financial risks and pursuing reforms ought to be the two policy priorities going forward. Fiscal policy should focus on strengthening structural adjustments and improving the efficiency of spending. Stricter measures are needed to control local government debt. Monetary policy should continue to focus on maintaining macro-financial stability. Exchange rate should be allowed to move more flexibly while capital controls should be liberalized at a pace consistent with external stability. Macro-prudential policies and financial regulation should continue to prioritize the need to curb excessive leverage and mitigate risks. To curb the high corporate debt, comprehensive efforts are warranted to manage vulnerable sectors and mitigate financial risks. Efforts to transform state-owned enterprises into independent market entities should be continued.
About AMRO and AMRO’s Annual Consultation Report
The ASEAN+3 Macroeconomic Research Office (AMRO) was established to contribute to securing the economic and financial stability of the ASEAN+3 region, which includes 10 members of the Association of Southeast Asian Nations and China, Hong Kong, China, Japan, and Korea. As an international organization, AMRO fulfils its mandate by conducting macroeconomic surveillance, supporting the implementation of the regional financial arrangements, the Chiang Mai Initiative Multilateralisation (CMIM), and providing technical assistance to the members.
The Annual Consultation Report was prepared in accordance with AMRO’s macroeconomic surveillance function. AMRO is committed to monitoring, analyzing and reporting to its members on their macroeconomic status and financial soundness. It also helps identify relevant risks and vulnerabilities, and assists members, if requested, in the timely formulation of policy recommendations to mitigate such risks.