2017 World Economic Outlook

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Since the beginning of 2016...

The International Monetary Fund (IMF) has cut the global GDP forecast multiple times and reached an 8-year low point of 3.1% towards year end. In the light of this, China has set its GDP target growth between 6.5% to 7.0%, while according to State Information Center’s latest estimation, China has achieved an annual GDP growth of 6.7%. In 2016, although China has solid performance in aggregate economic growth and success in “Supply-side Structural Reform”, it is still facing enormous challenges both within the country and from the outside.

On the domestic level, since China’s economy is facing considerable downward pressure, maintaining a sustainable economic growth is still the primary goal in the current circumstances. In the financial sector, the oversupply of money and low interest rate in the country result in people holding on their money and consumer behaviour shifting from investing in real economy to speculative investment. Therefore, the speculative investment activities are likely to prevail in the future, leaving real economy investment less attractive. For “Supply-Side Structural Reform”, there is still a long journey ahead for China to address overcapacity, reduce inventory, deleverage, lower costs, and bolster areas of weakness. In the past decades, the extensive development model and structural imbalance result in a severe market disequilibrium: on the one hand, steel and coal industry and other low-end manufacturing industries have supply far exceeding demand; on the other hand, as income level rises and consumer having higher expectation for the quality of services and products, there is insufficient domestic supply for higher value-added industries, thus heavily reliant on imports. To restore the structural balance, China has implemented policies to expand domestic demand and enhance “Supply-Side Structural Reform”, which in turns reduce excess capacity, promote industrial upgrading and encourage entrepreneurship and innovation.

On the international level, Trump’s presidency is likely to bring about changes in US trade policy and imposing challenges on China-US trade relations. At the same time, with widespread speculations that Federal Reserve is projected to raise interest rates at least twice in 2017, Chinese Yuan will experience more downward pressure. In Europe, uncertainties continue to spread across European Union after Brexit. On 4th December 2016, Matteo Renzi and his central-left democratic party suffered a clear “No” vote on the proposed Italian Constitutional Referendum and the former resigned from Prime Minister. The opposition far-right 5-Star Movement surged in polls and emerged as the leading party for next Italian general election. If the populist 5-Star Movement party, Italy is not far from exiting from European Union. The political instability in Europe will exacerbate the Middle-Europe trades and push US Dollars higher as a means of foreign exchange hedge.

Are Chinese enterprises being taxed to death? Is it real that Chinese enterprises are overloaded with tax? 2017 being a crucial year for China’s 13th Five-Year plan, in what way will China achieve its goals to deepen “Supply-Side Structural Reform”? What role is technology playing in economic growth? When we are enjoying the benefits of various kinds of free or cheap value-added services, will the country’s real economic growth rate be constantly underestimated? How will the global economy be affected as a result of the Federal Reserve’s monetary policy?