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2017 China Economic Outlook

01 January 2017tag:2017 China Economic Outlook Author: Yuan Associates

Economic stability is the Key for 2017

The year of 2017 will see the first plenary session of the 19th Communist Party of China (CPC) National Congress, when new party leadership will be elected. In order to ensure a smooth political transition, the CPC leadership set “maintaining stability” rather than “making progress” in key reform areas as the first priority for 2017 economic policies, at its annual economic policy-planning meeting on December 14 to 16, 2016.

This makes stable growth and risk prevention the main priorities for this year's economic planning, which indicates that the government will be cautious about making any progress in major reform areas. Therefore, it will not be a surprise that the major policy initiatives for 2017 remain stable and consistent with those in 2016. 

To maintain the economic stability, the government is committed to further deepen the Supply-side Structural Reform, boost the real economy and preventing the systematic risks, especially to cool down the real estate sector. In 2017, China will keep the Yuan stable, while improving the flexibility of exchange rates, which shows the government, is trying to find a subtle balance between stabilizing growth and controlling asset bubbles.

2017 Economy Expect to Remain Stable

The Chinese government has a strong political will to maintain stable growth in 2017, as a fairly stable and moderate economic growth is demanding for a smooth transition of leadership. China will put all political and economic resources available to prepare for the 19th National Party Congress.

In addition, the big domestic market for consumption will support the growth. China is upgrading its consumption demand and expanding the consumption space for its 1.3 billion consumers. The elasticity in the consumption market of China will provide a buffer for the government to maneuver and fuel China’s long-term economic growth. 

However, the deviation between policies and practical implementations is noteworthy. In recent years, the overall sentiment has been that the government’s policies are harder to implement on a practical level. We see the good and positive political will from the central government to promote the market economy and improve the business environment, but received very prudent and limited results. Meanwhile, in the short term, China’s economic risks and uncertainties such as the long-term fluctuations of the RMB exchange rate, the increasingly high corporate costs (i.e. land and human resources) are remain prominent. 

Multinational business in China is advised to proactively adjust its business strategy and structure in order to fit into China’s “New Normal”, and at the same time be prudent and prepared for risks.

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