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China's Growth May Surprise Again This Year


From the strength of global trade to the resilience of domestic consumption, reasons to think China’s economy won’t slow as much as expected this year are gathering.

The consensus among economists is that expansion in the world’s second-largest economy will slip to 6.5 percent in 2018 from 6.8 percent last year, according to Bloomberg surveys. Yet as the latest data show that the official manufacturing gaugeremains robust, and offshore shares had their best start to a year since 2009, there are voices predicting a better performance than that.

JPMorgan Chase & Co. economists on Wednesday raised their 2018 growth forecast to 6.7 percent from 6.5 percent, citing the "upbeat external outlook." China International Capital Corp. and Shanghai Securities Co. project a second consecutive annual acceleration. 2017 started with economists projecting a deceleration, only to upgrade their outlook consistently through the year.

Click here for the downside risks that could materialize in 2018

For Morgan Stanley, higher-than-expected shantytown renovation targets, renewed pledges that liquidity won’t be too tight, and strong demand for China’s exports are among positive signs that have brightened expectations for this year. A gravity-defying property market, buoyant consumption and rapid progress in high-tech manufacturing facilities are among other factors economists have cited as areas that could help spur upside surprises this year.

"Growth could accelerate in 2018, defying market expectations of gradual cooling," said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong. "More funds are being mobilized to advance the country’s advanced manufacturing capability. This could provide a lift to growth as capital expenditure soars."

What Our Economists Say:

"Risks remain significant. But the early signs for 2018 growth and reform are positive. In past years, China’s lowering of its growth target from 8 percent to the current 6.5 percent was viewed as a sign of weakness. In 2018, policy makers could step back from the target from a position of strength."

--Tom Orlik and Fielding Chen, Bloomberg Economics

The following are among the areas flagged by economists as having the potential to help propel growth surprises:


Confidence in the global and domestic economic outlooks may help support consumer spending, said Rajiv Biswas, chief Asia-Pacific economist at IHS Markit in Singapore. Consumption spending already accounted for about two-thirds of the expansion in 2016 and 2017 and has become the economy’s most important engine, he says.

"A combination of stronger-than-expected export growth and buoyant domestic consumer demand could therefore generate an upside risk scenario for the Chinese economy,” he said.

Market Boom

Financial markets may get a boost this year as investors with the equivalent of about $20 trillion of assets trapped in the country chase the best returns, says Derek Scissors, chief economist at the China Beige Book in Washington.

"The default is always property, but government discomfort with property prices, and belief the commodities rally is over, could push money toward stocks if benchmark interest rates are kept low, or bonds otherwise," he says. Analysts don’t forecast a change to the rates, which set borrowing costs economy-wide, through early 2020, a Bloomberg survey shows.

Click here for the outlook for PBOC monetary policy in 2018

Advanced Manufacturing

The rapidly upgrading manufacturing base and internet industry can now better aid growth, helping offset slowdowns in real estate and infrastructure investment, says Zhu Ning, deputy director of the National Institute of Financial Research at Tsinghua University in Beijing.

That new economy may take off faster than expected as China markets its high-speed rail industry and deep-sea exploration technology to other countries, according to Pauline Loong, managing director at research firm Asia-Analytica in Hong Kong.

Global Tailwind

The possibility that global growth continues to accelerate this year would boost exports, pushing the economic expansion above 7 percent, according to Shane Oliver, the head of investment strategy at AMP Capital Investors Ltd. in Sydney.

Stronger growth in major trade partners bodes well for exports, say Bloomberg economists Tom Orlik in Beijing and Fielding Chen in Hong Kong. They note the consensus forecast for U.S. and euro area growth in 2018 has risen in recent months, and based on PMI readings for China’s major trade partners in December, momentum is at its strongest since 2010.

Pivotal Property

So important a growth engine is real estate that it wouldn’t be a surprise if curbs on prices are loosened, both for mortgages and developers, says Christopher Balding, an associate professor at the HSBC School of Business at Peking University in Shenzhen.

"Chinese real estate goes through these up and down cycles and I won’t say we are at the trough yet," he said. "But I wouldn’t be shocked by a surprise kick to real estate in 2018."

— With assistance by Kevin Hamlin


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