Forecasts for China’s economy in 2016 

 

Forecasts 6.5% China growth for 2016

China’s economic growth will only reach the lower end of its own projections and its slowdown risks weighing on the rest of Asia, according to a report from the Asian Development Bank.

The ADB’s flagship Asia Development Outlook 2016 forecast that China’s economy would grow at 6.5 per cent this year and 6.3 per cent next year, compared with Beijing’s expectations of between 6.5 and 7 per cent for 2016 and an average of 6.5 per cent over the next five years.

The slowdown in the region’s biggest economy has knocked as much as 0.3 percentage points off the outlook for developing Asian economies because of the region’s trade and supply chain links, the ADB said.

“[China’s] growth moderation and [the] uneven global recovery are weighing down overall growth in Asia,” said Shang-Jin Wei, ADB chief economist, who added that in spite of this, the region would still contribute more than 60 per cent of global growth this year.
The bank forecast regional growth of 5.7 per cent for this year and next, down from 5.9 per cent in 2015. “Developing Asia” is a 45-country grouping used by the ADB that includes central Asia and the Pacific as well as countries in east, south and Southeast Asia.
Despite the turmoil that gripped global markets in January as investors worried that China might be slowing faster than feared, the ADB said the country’s wider economic impact was still largely limited to the region, with any negative effects of the country’s slowdown elsewhere in the world offset by gains from lower commodity prices.
Should China experience the sort of hard landing that investors feared in January — classed as “unlikely” by the ADB — the global economy would be hit much harder, knocking up to 1.8 percentage points off worldwide growth.

The report also highlighted the complexity of China’s economic relationships in the region as supply chains evolve. While manufacturing powerhouses such as South Korea have lost market share as China has moved up the value chain, others such as Vietnam have benefited from taking over lower-end production from its giant neighbour.

The effect is not just limited to technology. Bangladesh has also been a notable gainer, becoming the world’s second-largest garment exporter as China focuses on developing less labour-intensive industries.

China will continue to struggle as it shifts from investment-led growth to an economy where consumption plays a larger role, the ADB said. Last year services and consumption accounted for 4.6 percentage points of China’s overall growth, up from 3.7 in 2014.
However, the ADB warned that governments around the region, including China, needed to focus far more on boosting productivity. Almost half the slowdown in average growth in the region between 2008 and 2014 was due to moderating potential growth.

“Potential growth depends on both the growth of the labour force and the growth of labour productivity,” said Mr Wei. “While altering demographics is not something that can be accomplished within a few years, many developing economies still have tremendous room to use structural reforms to remove distortions in the labour, capital and land markets‎.”
Only Southeast Asia is forecast to see growth rates improve in 2016, nudging up to an annual rate of 4.5 per cent from 4.4 per cent in 2015, the ADB said, before picking up to 4.8 per cent in 2017. Seven out of 10 members of the Association of Southeast Asian Nations experienced weaker economic growth last year, including Indonesia, which underwent a fourth successive year of slowdown.