No. 28 | Half-year Review and Outlook
On June 18th, 2016, the 28th Tsinghua University Forum of China and the World Economy was held in the International Lecture Hall of Weilun Building. Themed with “half-year review and outlook”, the forum summed up China's macroeconomic performance in the past six months, analyzing domestic and international situation in near future while predicting trend of economic development for the coming year. The following guests were invited to attend the forum: Professor Ni Feng, Deputy Director, Institute of American Studies, Chinese Academy of Social Sciences, Chen Yunfeng, Secretary-General, China Economic Union, Charles Hutzler, China Bureau Chief, Wall Street Journal, Wang Hongling, Research Fellow, Center for China in the World Economy (CCWE), and Professor Yuan Gangming, Research Fellow, CCWE, Tsinghua University. Professor David Daokui Li, CCWE Director, chaired the forum.
Professor Li firstly released CCWE’s latest macroeconomic analysis and forecast report. Entitled “Economic growth is bottoming out, Overall risk is under control, Reform needs to be further implemented”, the report identifies current status of the Chinese economy, warns against potential risks and analyzes reform measures to realize future economic potentials. The report believes that in first half of 2016, the Chinese economy will continue to slow down with slight fall in overall consumption volume. However, it should be noted that both disposable income and disposable wage income are growing slower than GDP in recent period. Real-estate investment is recovering at a steady rate. In addition, thanks to rising commodity prices, PPI growth is expected to turn positive after 50 months’ of continuous declination.
According to the report, Chinese economy is facing uncertainties as a result of corporate debt, excess capacity and Fed rate rise but the overall risk is controllable. Since Chinese enterprises are known for their decent financial solvency, there is no need to worry too much about leverage issue. The central government finance has the ability to ensure a smooth transition period featuring unemployment issue and bad loans which are resulted from the 20% reduction in capacity of coal, iron and steel, nonferrous metals and cement industry. Moreover, we shouldn’t worry too much about the potential risk posed by Fed rate rise because the key to stabilize RMB exchange rate and cross-border capital markets lies in resolving domestic risks and letting investors form a stable expectation.
Professor Li believes that the potential of future Chinese economic growth depends on whether we can optimize the fundamental system of the market economy in an all-round way and we must focus on reforming investment and financing mechanisms, threshold for market-oriented enterprise entry and exit, labor and employment systems, household registration system and supporting public services. The report predicts a 6.7% and 6.6% GDP growth for China in 2016 and 2017 respectively.
In the free discussion session, the guests moved on to current issues, and had direct communication with audiences.
Despite the similar challenges compared with those in 1999, Professor Yuan believes that the overall status of the Chinese economy is way better than that in that time. Specifically speaking, China now has higher state revenue, a more stable banking system and a much smaller unemployed population. Besides, bank deposit is still the major form of household savings. However, it’s hard to push the reform of state-owned enterprises because of interest distribution and administrative protection.
Chen Yunfeng said that the real estate market has been recovering fast recently. The period from January to May sees housing prices rising in 60 large and medium-sized cities. and is likely to continue. Besides, government behaviors have had an obvious effect on the market. He refused to rule out the possibility of even more stringent restriction measures by the government, such as restricting the purchase of commercial housing, but underlined that the whole situation is unlikely to change. As for property tax, he said the tax, destined to be introduced in the “13th Five Year Plan” period, involves excessively complex interests.
Professor Wang said, the current stock market, hovering at about 2800-3000, is staying at a technically low. Unfortunately, because the system is imperfect, it’s not easy for investors to acquire high returns in the long run. He pointed out that enterprises listed on foreign stock markets are usually well-aware of the potential risks as a result of poor management that would eventually end up with delisting, hostile takeover, and loss of ownership. In contrast, many enterprises listed on domestic stock market have nothing to worry about under the protection of administrative power. The lack of binding effect will restrict the development of capital markets in the long term.
Professor Ni had an in-depth analysis of the current international political situation. He regarded Donald Trump as a political “outsider” who has brought unprecedented impact to American politics. Nevertheless, the US has established a mechanism deeply involved in international affairs after WWII. It will not be easy to return to isolationism. Moreover, if elected, candidates often implement policies inconsistent with what they promised during the election. Thus, we don’t have to worry about a sharp reversal of policy in the US except for a few minor adjustments.
Mr. Hutzler noted that the impact Trump brought to American politics will be long-lasting. If he loses the election, Republicans may face the risk of division, and Americans may witness political upheavals. As a shrewd businessman, Trump often changes the tune despite of his sharp-tongued rhetoric. Therefore, it’s quite difficult to predict what policies he will pursue if he is elected. Then, he commented on the referendum on “Britex”. He said that Britain is more likely to leave the EU according to recent polls. But the impact of the assassination of a MP last week remains to be seen. When it comes to the Chinese economy, he said China needs to give a clearer signal on debt level in the country, which is the most puzzling issue to westerners.
After that, the guests had relaxed and pleasant interactions with the audience on the issues of stock market, RMB exchange rate, macroeconomic trends, real estate, etc. The forum achieved complete success and concluded in warm applause.
