Tackle China's Economic Complexities by Deepening Reform and Opening Up: Macroeconomic Outlook,Policy Simulations,and Reform Implementation—A Summary of the Annual SUFE Macroeconomic Report (2018-2019)

Faced with complicated external and internal challenges, China's economy continues to see sluggish growth in 2018. Rapid accumulation of household debts, exacerbation in income inequality, tightened real sector liquidity, escalated trade tensions with the US, and weakened external demand pose key problems in China's macroeconomic landscape. The status quo is exacerbated by soaring uncertainty and weakening confidence in the face of persistent resource misallocations and institutional distortions, which cast more shadow on the already dampened consumer sentiment, sluggish private investment growth, and fallen foreign reserves. This summary report highlights the urgency of deeper structural reforms for tackling the various internal and external problems. Based on the IAR-CMM model, with both cyclical and secular factors taken into consideration, our baseline forecast of real GDP growth rate is 6.4%(6.1% using more reliable instead of the official data) in 2019. Alternative scenario analyses and policy simulations are conducted to assess the consequences of possible downside risks and the corresponding policy options needed to ensure the assumed growth targets. These analyses lead us to conclude that comprehensively deepening reform and opening up, which should be both rule-of-law based and market-oriented, with well-designed and well-conceived strategies that properly weigh short-, medium-, and long-term benefits and costs, should continue to be set as the guidance for China's transformation into a phase with sustainable and high-quality growth.     

Conquering China’s Unbalanced and Inadequate Development: Macroeconomic Outlook,Policy Simulations,and Reform Implementation—A Summary of Annual SUFE Macroeconomic Report (2017–2018)

Leaving year 2017 China’s macroeconomy is continuously characterized by unbalanced and inadequate development. Whereas some aggregate indicators have shown improvement over the year, the cumulative growth rates in consumption and fixed asset investment have continued their downward trajectories. Worsening income inequality and resource misallocations, both between secondary and tertiary industries, and within the latter, pose serious challenges, let alone the systemic risk associated with the flourishing shadow banking system, rapid credit growth and debt overhang that weigh on the Chinese economy like the Sword of Damocles. This summary report highlights both the status quo and the consequences of the unbalanced and inadequate development embodied in China’s persistently distorted economic structure, and the role of deepening reforms of the institutions and governance in resolving the problems. Our analyses based on IAR-CMM model provide a unified framework for addressing China’s short-, medium-, and long-term issues in an internally coherent manner. Looking into year 2018, our benchmark projection of real GDP growth rate is 6.7% (6.41% using more reliable rather than the official data). Alternative scenario analyses and policy simulations are conducted to reflect various aspects of the economic challenges in the short to long runs. Through the lens of these analyses we conclude that rule-of-law based and market-oriented structural reforms should continue to hold a center stage in China’s transition from a phase of high-speed but unbalanced growth, to a stage of balanced and adequate high-quality development.     

China’s Macroeconomic Outlook and Risk Assessment: Counterfactual Analysis,Policy Simulation,and Long-Term Governance — A Summary of Annual Report (2015–2016)

This summary report highlights the confluence of continued downward pressures and deflation scares in the face of looming uncertainty in China’s key macroeconomic landscapes. Counterfactual analyses and policy simulations are conducted, in addition to benchmark forecasts, based on IAR-CMM model and taking into account both cyclical and secular factors. Economic deceleration is projected to continue in the short to medium term, with real GDP growth declining to 6.3% (5.5% using more reliable instead of official data) in 2016 and facing a significant risk of sliding further down in 2017. Five key factors contributing to the weak outlook, additional to frictions and impediments associated with economic transition/restructuring and lackluster domestic/external demands, are identified, including: lack of new growth/ development engine, exhaustion of government-led driving force, the crowding-out of private sectors by state-owned enterprises (SOEs) with excess capacity\capital overhang, nonperforming government sectors and officials, and twist or misinterpretation of the “New Normal.” A root cause of these problems, lying with sluggishness in China’s transformation into a market based economy, has to do with overpowered government but underpowered market in resource allocation and government underperformance in enforcing integrity and transparency in the marketplace and in providing public goods and services. At the nexus between inclusive growth and institutional transformation are market oriented and rule of law governed structural reforms and harmonious development. As such, fundamental institutional reforms that dialectically balance demand and supply side factors and properly weigh short run stabilization against long run development should be elevated to the top of the agenda.