China's Macroeconomic Balancing Act: Shifting to New Drivers of Growth and Sustaining Financial Stability

• Author: Yiping Huang,Qiuzi Fu,Yan Shen
• DOI: http://doi.org/10.1111/1467-8462.12249
• Date: 01 December 2017
• Published date: 01 December 2017

Policy Forum: China’s New Model of Growth, Challenges and

Progress

China’s Macroeconomic Balancing Act: Shifting to New Drivers

of Growth and Sustaining Financial Stability

Yiping Huang, Yan Shen and Qiuzi Fu*

Abstract

In the lead-up to China’sf‌ive-yearly National

Party Congress late in 2017, attempts to resolve

conf‌licts between short-term growth and struc-

tural reform have tended to favour immediate

growth. The new model of growth requires new

economy sectors to grow much more rapidly than

traditional (post-1978) sectors. For a while, this

was proceeding well, but in late 2016 and during

2017 there have been signs of priority for growth

and therefore traditional sectors over the new

economy. Favouring growth over reform intro-

duces risk into longer-term growth prospects.

1. Introduction

At the National People’s Congress (NPC)

meeting in early March 2017, the Chinese

Government set its annual growth target at 6.5

per cent, a notch down from the actual 6.7 per

cent in the previous year. It vowed,however, to

achieve stronger expansion if possible. The

government is especiallycommitted to support-

ing growth in the lead-up to the 19th National

Party Congress in the third quarter of 2017.

During the f‌irst half of 2017, better than

expected results were recorded, with growth in

gross domestic product (GDP) reaching 6.9 per

cent. Early data on industrial production, trade

and f‌ixed-asset investment conf‌irm that, since

mid-2016, economic momentum has continued

to increase. Analysts’views on the short-term

economic outlook, however, remain divided.

At both the Central Economic Work Confer-

ence in December 2016 and the recent NPC,

policy-makers set the tone for economic policy as

‘making progress while maintaining stability’.

They outlined three key features of macroeco-

nomic policies for 2017: (i) adopting proactive

f‌iscal policy but prudent/neutral monetary pol-

icy; (ii) increasing exchange rate f‌lexibility while

maintaining basic exchange rate stability; and

(iii) prioritising the control and resolution of

systemic f‌inancial risks.

Since 2010, some have been arguing argue

that the growth deceleration is cyclical, while

others believe it is mainly a change in trend.

We think that the most important cause of the

current growth slowdown is structural. In the

past, exports and investment were the main

drivers of Chinese growth, while consumption

* Huang and Fu: National School of Development, Peking

University, Beijing 100080 China; Shen: National School

of Development and Institute of Digital Finance, Peking

University, Beijing 100080 China. Corresponding author:

Huang, email <yhuang@nsd.pku.edu.cn>.

The Australian Economic Review, vol. 50, no. 4, pp. 460–8

°

C2017 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research

Published by John Wiley & Sons Australia, Ltd