Balancing Growth and Structural Adjustment in China
Fiscal and monetary expansion may be out of fashion among China’s mainstream economists, who insist that structural adjustment must be the priority. But it could go a long way toward bolstering China’s economic performance in 2019, without impeding structural reform.
BEIJING – After a disappointing performance in 2018, China’s economy appears to be stabilizing. In the first quarter of 2019, GDP growth, at 6.4% year-on-year, matched that of the previous quarter. But growth in industrial production exceeded expectations, expanding by 6.5% year on year (and by 8.5% in March). Even exports growth was positive, albeit weak, despite the ongoing trade war with the United States.
Moreover, fixed-asset investment (FAI) grew by 6.3% – 0.2 percentage points higher than in the previous quarter. Investment in real estate grew the fastest (11.8%), followed by manufacturing (4.6%) and infrastructure (4.4%). Growth in both real-estate and infrastructure investment was stronger not only sequentially, but also year on year. As usual, consumption growth was stable. All of this has inspired confidence that the Chinese economy can reach its indicative growth target of 6-6.5% for 2019.
Most Chinese economists seem quite comfortable with this targeted range. One explanation is that China’s potential growth rate is 6-6.5 %, and a target should be set accordingly. Another is that a lower growth rate would give the economy more room for structural adjustment.