China's economic growth rate seen falling until at least 2018

Pedestrians on Nanjing Road in Shanghai on Oct 2.
Pedestrians on Nanjing Road in Shanghai on Oct 2.PHOTO: BLOOMBERG

BEIJING (BLOOMBERG) - China's economy, already in the midst of a half-decade deceleration, won't arrest its downward trajectory until at least 2018.

Six of 12 economists surveyed by Bloomberg last week say 2018 will be the turnaround year, while five said it will take until 2019 or after for growth to re-accelerate.

The outlook underscores the challenge facing President Xi Jinping as he aims for gross domestic product gains averaging at least 6.5 per cent per year for the next five years so he can deliver on his goal of doubling 2010 income and GDP levels.

Policymakers are in a bind. Efforts to reform the supply side of the economy by eliminating overcapacity and improving the quality of expansion are key to long-term prospects, yet policies to fix the mess may weigh on the short-term outlook. That leaves the need for stimulus that risks adding to a debt pile already hanging over the world's second-largest economy.

Setting aside the notorious question of accuracy with China's GDP - which popped up again this month - growth is forecast this year to slow to its weakest since 1990 as robust consumption and strength in services are not enough to offset the drag from slumping old-economy sectors including steel, coal and cement.

A future pick up in the pace of expansion may be driven by economic reforms that gather pace after a leadership reshuffle that begins in late 2017, according to Dr Daili Wang, a Singapore-based economist at Roubini Global Economics.

"My views of re-acceleration are based on the implementation of market reforms in 2018," said Dr Wang. "The ongoing anti-corruption campaign is a perfect barometer measuring opposition power and the 2017-18 reshuffle should prove the last jigsaw to consolidate top leaders political power - if not done by the campaign before that."

At the 19th party congress in 2017, five of seven members on the Politburo's supreme Standing Committee - all except President Xi and Premier Li Keqiang - are scheduled to retire, having reached or passed the age of 68. China's top team by convention serves a maximum of 10 years, with a reshuffle at the halfway mark that signals the next party head and sees new members of decision-making bodies picked.

Societe Generale and Hang Seng Bank do not see growth re-accelerating until 2020 and Guosen Securities estimates it will take until 2025 for the next year-on-year pick up in the pace of expansion. Societe Generale's Paris-based China economist Yao Wei estimates growth will slide to 5 per cent in 2019.

"We don't have an official forecast for 2018 yet, but my sense is that it will be up slightly from the 2017 rate," said Mr Patrick Franke, an economist at German savings bank Helaba in Frankfurt. "The trend is still downward, however. Medium-term, China is heading for 5 per cent or lower."

Doubts over the accuracy of China's economic data persist. In the third quarter, for example, China reported growth of 6.9 per cent. One growth proxy designed by Capital Economics in London recorded growth at 4.4 per cent while another by Barclays estimated growth of 5.2 per cent.

Several local governments in the north-eastern provinces of Heilongjiang and Liaoning faked economic data such as revenue and investment figures, the official Xinhua News Agency reported last week, citing unidentified local government officials. Heihe city in Heilongjiang exaggerated 1.9 billion yuan (S$413 billion) of investment in 2013, or 8.5 per cent of a reported 22.3 billion yuan total investment that year, Xinhua said.

China's economy began its current slowdown in 2011 after growth of 10.6 per cent the year earlier. Expansion slowed to 7.3 per cent in 2014 and is estimated to fall this year to 6.9 per cent, according to a separate Bloomberg survey.

Economic data for November showed signs of stabilisation, with industrial production, retail sales and fixed-asset investment all exceeding estimates. Bloomberg's monthly GDP tracker rose to an estimated 6.85 per cent, its best reading since June.

Mr Hugo Ferraz Penteado, an economist at Santander Asset Management in Sao Paulo, sees China's expansion tumbling to 5.5 per cent by 2019 as private investment decelerates "for years" and the economy shifts from one led by exports and industry to a greater dependence on consumption and services.

"This is not cyclical. This is prolonged deceleration to a new structural growth," said Mr Penteado. "Get used to it."