In the midst of a potential trade war with the US, there's little sign that China's booming economy is flagging as first-quarter gross domestic product (GDP) figures, released today, show annual growth holding steady at 6.8%.
China's total GDP was ¥ 19,878bn in the January-March period. The data was slightly down from last year's 6.9% but still ahead of government and analysts’ expectations of 6.5%.
Continued strength in e-commerce and factory output feeds one of the world’s strongest economies. The service industry and private investment grew respectively by 8.1% and 7.5% year on year.
The International Monetary Fund growth outlook for China between 2017 and 2021 was revised upwards to an average 6.4%.
However, China’s compelling growth story is couched between twin concerns of a need to boost consumption and reduce rising consumer and business debt. The government has taken some steps through the use of wide-ranging reforms towards rebalancing the economy.
Government support to innovation-driven new economic sectors is integral to its expansion. According to the National Bureau of Statistics of China (NBS), continued robust results are due to the country’s focus on a modern economic system underpinned by “vigorous implementation of policies”.
Wall of debt
On its priority list must be its ability come to grips with rising debt. A major weakness for China that could prove to be a deterrent to future growth.
Household debt climbed from 44.8% to 53.2% of GDP according to data from Southwestern University of Finance. A figure that has tripled in a decade offsetting the high level of savings by consumers.
The Wall Street Journal estimates total debt is around 265% of GDP as investment in infrastructure and development increased.
Easier credit was a tool the government used to encourage borrowing and spending as a means to raise consumption.
As part of dealing with the consequences of easy credit, the government is reining in state-owned firms, strengthening regulations and, finally, forcing so-called “zombie companies" — insolvent companies kept alive by banks — to close. Even with such core problems, China’s economy so far is resilient as the government sticks to its economic plan.
The miracle of commerce
Consumer demand is also spurring growth. Total retail sales of consumer goods rose by 10.1% with physical goods of online retail sales accounting for 16.1% of the total. E-commerce saw explosive growth of 35.4%.
China needs its citizens to buy as it aims to maintain its economic miracle. A trend that will surely help the country to shift from becoming the world’s largest exporter to becoming the world’s largest consumer according to Jack Ma CEO of Alibaba.
Writing in an recent op-Ed for the Wall Street Journal, Ma anticipates that an emerging middle class numbering 300 million who want to buy higher quality and luxury items including food, cosmetics and fashion and are ‘already driving massive demand for imports from all over the world.”
Crossing a river by feeling for stones
Earlier in April, at a business and political conference in Hainan, China, President Xi Jinping laid out proposals for opening up China’s markets to foreign business. Though there were some overtures towards addressing some of the demands from the Trump administration, the lack of a definitive timetable suggested restraint and that China will continue to move at its own pace.