Wed, Jan 03, 2018 - Page 10 News List

China warms up for ‘critical battles’

FAULT LINE:Tightening of environmental regulations this year might slow housing and infrastructure construction, which could have an influence on emerging sectors


China this year starts three years of “critical battles” against debt, poverty and pollution as policymakers also face rising US interest rates, renewed trade-war threats and nuclear saber rattling from North Korea.

While the nation is starting from a position of greater strength, with full-year expansion last year poised for its first acceleration since 2010, the world’s second-largest economy is seen slowing this year, even without any of the more grave dangers materializing.

As a result, Chinese President Xi Jinping’s (習近平) government is signaling that it is sanguine about more modest economic performance, if progress on the no. 1 risk — financial fragility — can be made.

“Significant economic imbalances continue to create downside risk to the outlook for 2018,” said Rajiv Biswas, chief Asia-Pacific economist at IHS Markit in Singapore. “Risks to the Chinese economy will remain among the key risks to the global growth outlook in 2018, with the Asia-Pacific region particularly vulnerable to the shock waves from a slowdown.”

Those waves have not yet materialized and economic activity is holding up. The official manufacturing purchasing managers index was at 51.6 last month, signaling improving conditions. New manufacturing export orders also climbed to a six-month high, according to a sub-index.

Still forecasters see expansion slowing to 6.5 percent — the slowest pace since 1990 — this year, the following are among areas they flag as having the potential to trip up economic growth or spur market turbulence.


The Chinese Communist Party renewed its pledge to prevent and control financial risk, calling it a pivotal challenge for the next three years. As the financial system opens further to foreign firms, a debt-to-GDP ratio that is heading toward more than 320 percent by 2022 stands as the main danger.

“Even its own propaganda machine admits that this is such a serious problem that Beijing doesn’t expect there to be any solution in anything less than three years,” said Pauline Loong, managing director at research firm Asia-Analytica in Hong Kong. “Financial instability is the core problem. Solve that and you ease pressure on capital outflows, complications from deleveraging, weaknesses in smaller banks.”


The tightening of financial and environmental regulations to help curb debt might cause tremors this year that slow housing and infrastructure construction, according to Frederic Neumann, cohead of Asian economics research at HSBC Holdings PLC in Hong Kong.

“A sharper-than-expected slowdown in construction could thus weigh on broader activity with emerging sectors not yet vigorous enough to provide a sufficient cushion,” Neumann said. “The biggest fault line running through the Chinese economy is the construction sector.”


US President Donald Trump’s recent US national security strategy speech was a “tee up” for a turn toward protectionism, former China specialist at the US Treasury Department David Loevinger said.

“On the menu for 2018: Lots of red meat for the base, and that means bashing imports,” said Loevinger, now an analyst at TCW Group Inc in Los Angeles. “Since nationalistic populism is as irresistible in China, Chinese politicians will feel compelled to retaliate.”

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