China’s ‘annual growth rate in the coming decade could be 8%’
China’s government needs to implement more fiscal and monetary policies to stimulate domestic investment and consumption to improve GDP growth, according to a leading academic.
Justin Yifu Lin, dean of Peking University’s Institute of New Structural Economics, said the Chinese economy could see growth in excess of 5% in 2024 and that the nation’s potential annual growth rate in the coming decade could be 8% or higher.
In an interview with the China Daily website, Lin rebutted theories that economic growth will continue to drop due to such factors as demographic changes and the so-called balance sheet recession, as experienced by Japan.
A balance sheet recession implies that households and enterprises have high levels of debt, resulting in sluggish consumption and investment, which in turn causes growth to either slow down or decline.
“I personally believe it would be possible for China to reach 5% to 5.5% growth this year,” said Lin. He said the global economic slowdown and falling external demand are the biggest challenges facing the Chinese economy. “These factors dampen the confidence and investment sentiment of private enterprises — a major force in China’s foreign trade sector — resulting in fewer jobs and discouraging consumption and investment.”
He added: “It would be desirable for the government to adopt more proactive countercyclical fiscal expansion, as well as monetary expansion, to provide more resources for supporting domestic investment and consumption.”
He said the government should invest more resources in areas where private enterprises are not eager to invest, such as basic research, green infrastructure and skills training, to promote technological innovations and industrial upgrades.
Lin, who is also former senior vice-president and chief economist of the World Bank, also suggested that the Chinese government should adopt industrial policies to support entrepreneurs.
China is experiencing an uneven economic recovery after the Covid-19 pandemic, and many experts have been calling for stronger policy support to stimulate investment and consumption.
Lin said it is wrong to predict that China’s economy will never catch up with the United States’ economy, based on the argument that the expansion of State-owned enterprises could weaken the private economy. He added that China is unlikely experience a real estate bubble burst, as Japan did in the 1990s.
Investment in expansion projects such as highways and 4G or 5G networks carried out by State-owned enterprises has not only created more jobs but has also provided solid infrastructure for private enterprises, including big internet platforms, Lin said.
China is unlikely to relive Japan’s experiences and enter a period of balance sheet recession, as long as it promotes technological innovations and industrial upgrades, and creates more investment opportunities for enterprises, Lin said.
Mortgage rates cut
China’s central bank has implemented the biggest cut on record to a mortgage rate benchmark, with the aim of bolstering economic revival, with additional cuts to a key policy rate likely on the horizon, experts said.
The over-five-year loan prime rate (LPR), on which lenders base their mortgage rates and long-term corporate loans, dropped by 25 basis points to 3.95%, the first cut since June 2023, said the People’s Bank of China.
The 25-basis-point cut marks the biggest cut since the over-five-year LPR served as an interest rate benchmark in 2019. The one-year LPR was left unchanged at 3.45% at the bank’s latest rates setting meeting.
Yan Yuejin, director of the E-house China Research and Development Institution, said the cut would save about 150 yuan (around £17) in monthly payments for a new homebuyer who takes out a 30-year mortgage with a principal of 1 million yuan, thus helping recovery in the housing market.
Ming Ming, chief economist at CITIC Securities, said it was possible that the PBOC would cut the medium-term lending facility rate or MLF rate — a key policy benchmark — in the second quarter of 2024, given that it is highly likely that global monetary policy will loosen this year.
