Debate: In light of beating its expansion target, can China sustain its ambitious growth?

Cityscape Of Shanghai - The World Expo City
China’s economy is maturing, and slowing growth is natural (Source: Getty)

In light of beating its expansion target, can China sustain its ambitious growth?

Dr Savvas P Savouri, chief economist and partner at Toscafund Asset Management, says YES.

It has become something of a tradition at this time of year for people to call the top to China’s growth. The precise explanation for why we should expect a hard landing has varied; from China being in the throes of a credit-driven “unsustainable” construction boom, to its growth figures being fabricated. Some even claim that calls for democracy will lead to social unrest.

Just as I have done in the past with this perennial fearmongering, I dismiss it.

The reality is that China really only became a crucial part of the global economy in 2002, having joined the World Trade Organisation at the end of the previous year. Since then, affluence within it has surged. True, too many Chinese remain poor. No less true, however, is that enough have moved up the wealth scale to ensure China now hosts a middle class larger in number than seen anytime or anywhere in history. It is expanding fast.

Far from China being unable to sustain its rate of economic growth, I confidently predict that its best is yet to come.

Read more: China's economy surprises with growth of 6.9 per cent in 2017

Danae Kyriakopoulou, chief economist and head of research at OMFIF, says NO.

Talk of sustaining strong growth in China is based on shaky premises. Yesterday’s news of above-target GDP expansion follows a year in which several provincial governments admitted to having faked statistics that artificially inflated growth estimates. But even if the statistics were correct, it would be difficult to sustain the pace. China’s economy is maturing, and slowing growth is natural.

It is also welcome. Last year’s performance was supported by strong exports and government spending on infrastructure. This is exactly the structure China wants to move away from. The leadership’s priority is not – and should not be – the pace of growth, but its composition. This involves rebalancing away from exports and manufacturing, and towards consumption and services.

Deleveraging will also be key. In 2017, accelerating growth was accompanied by a falling debt-to-GDP ratio for the first time since 2011. But the balancing act between sustaining growth and deflating credit levels is becoming more difficult.

Read more: Burberry sales declined in the UK as the tourist boom slowed down

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

Related articles