Economy

China Expects Falling GDP Next Year

December 26, 2016

China GDP is expected to slow to 6.5 percent next year and decline to 6.4 percent by third and fourth quarters.

A report released by the Chinese Academy of Social Sciences (CASS) said economic expansion is likely to dip next year due to declines in export demand, investment growth and domestic demand.

The Dec. 19 report stated, however, “Employment and prices will be maintained at a generally stable level and the Chinese economy will not have a hard landing.”

Private and foreign investment have slumped since January, said the CASS report. Manufacturing, service and mining, which are supported by private investment, continue to show weakening revenues and profits. Foreign investment was down by 20 percent in 2016, according to the report.

CASS expressed concern about the growing level of debt in China, noting that $7.6 trillion yuan ($1.1 trillion), nearly half of the country’s social financing, was used to pay off interest in 2016, and called it a form of “Ponzi financing.”

Despite tightening measures by the government in 2016, corporate profits were down for the year and debt defaults increased, said the report.

“It is hard to judge accurately the effects of the government policy to prompt private investment, and it is hard to raise private investors’ profitability expectations,” said CASS. “The government introduced many measures this year, but so far they have not substantially improved the operation situation of the real economy, especially the small and medium-sized business.”

CASS expects that during the next one to three years “systemic risks in the economy will continue to accumulate and it is possible a regional financial crisis could break out, which will be extremely negative for China’s economic development and social stability.”

According to the report, said Caixin Global, “Emerging economies like China are facing strained borrowing conditions abroad, rising debt levels and weakening demand for their products next year as global economic prospects remain gloomy. Expectations of more U.S. interest rate hikes have led foreign capital to leave emerging markets, worsening asset valuations and volatilities there.”

According to an SMU source from China, the GDP announcement for 2017 “threw the Future’s market in a spiral for Coal, Coking Coal, Rebars, Wire Rods, etc.” with all major products dropping 3.5 to 6 percent on Monday of this week.