Forecasts for China’s economy in 2014

Forecasts for China’s economy in 2014

 

   In 2014, the world economy is expected to gradually emerge from the shadow of the international financial crisis. The IMF forecasts that the world economy will grow by 3.6 percent in 2014, and that developed economies will grow by 2 percent, up 0.8 percentage points from 2013, while emerging economies and developing countries will increase by 5.1 percent, up 0.6 percentage points. In this context, China’s export growth is estimated to be around 8.5 percent higher than in 2013

According to international economic theory, when a country or region achieves middle and upper income levels, a downward drift may occur in its economic growth rate.

China's economic growth rate is forecast to drop from 9-10 percent in the Eleventh Five year plan to 7-8 percent in the Twelfth Five year plan. Over the past two years, although China’s economic growth rate has slowed down; there has been no significant decline in domestic employment. It is estimated that under current circumstances, the growth rate of China's economy can continue around 7.5 percent.

In the coming year the government will further intensify efforts to promote consumption. The promotion of new human-oriented urbanization will help to increase consumption. In 2014, total retail sales of consumer goods are forecast to grow by about 13.6 percent slightly higher than in 2013.

At the Third Plenary Session of the 18th Central Committee of the Communist Party of China in November, the following areas were highlighted on the leadership’s reform agenda: administration, the fiscal system, land tenure, the household registration system, the social security system, resource pricing, and the financial sector.

Structural reform should result in less government intervention in economic activity. Markets will play a decisive role in allocating resources. Due to a substantial increase in Total Factor Productivity, the potential economic growth rate will remain at around 7.6 percent over the next 10 years, and the quality of growth will continue to improve.

The government proposes to ensure that the economy runs within a reasonable range. Should downward pressure occur in 2014, the government will introduce moderate policy stimulus and ensure economic growth will not fall below the defined limit.

GDP growth in 2014 is expected to be slightly better than in 2013, remaining within a reasonable range of 7.5-8 percent, initially estimated at about 7.8 percent if all runs smoothly. China’s rapid growth can be expected to continue under the conditions of a slight improvement in external demand, the ability to support potential growth, reform, and a moderately stimulating macroeconomic policy.

According to a statement issued after a central rural work conference, China has pledged to strengthen rural reform and step up agricultural modernization. Central government policy on the countryside, agriculture, and farmers has been effective in maintaining enthusiasm in the new century and has boosted the development of agriculture and the countryside.
　
The CPI (consumer price index) is expected to rise in 2014. As economic growth picks up, increasing demand will have a pull-up effect on prices. The mechanism of the ladder price of utilities such as domestic water and electricity is likely to produce a short-term impact on consumers.

Living costs for migrant workers and public expectations of rising real incomes, along with a weakened demographic dividend, will all contribute to rising labor costs, which will in turn push up the end prices of products and services. Demographic dividend refers to a period – usually 20 to 30 years – when fertility rates fall due to significant reductions in child and infant mortality rates.

Land prices are expected to maintain an ongoing rebound, with rising real estate prices resulting in higher rents and housing prices.

CPI inflation is projected to move up gradually in 2014, but at a moderate and manageable pace, while the PPI is projected to grow by 1- 2 percent

Despite the impact of the Fed’s QE taper in the US, capital inflows in 2014 may be enhanced. Experts believe that the yuan's exchange rate will maintain its moderate upward trend this year, but in the longer term the yuan's exchange rate against the U.S. dollar could drop below 6 due to the pressure brought by capital inflows.