MNI: China Economists See Slowing Growth Momentum in 2018

--Real GDP Growth Rate To Slow To As Little As 6.5% From Projected 6.8% This

Year

--Nominal GDP Growth To Slow Even More As Inflation Rises

--Private Investment To Slide Further; Exports Lackluster

--Gov't Constrained In Propping Up Growth

--Growth in M2 Money Supply To Slow Further

By William Bi

     BEIJING (MNI) - The Chinese economy will likely slow next year amid a host

of challenges, including waning investment, the withdrawal of government support

policies and a scaling back of global liquidity, according to a panel of China's

leading economists.

     The "short-term unexpected rebound" seen this year doesn't mean the Chinese

economy is entering a new cycle of growth, said Liu Yuanchun, vice president of

Renmin University and executive dean at the National Academy of Development and

Strategy. 

     Liu, along with five other state-affiliated scholars, spoke on Sunday at a

forum in Beijing presenting his institute's annual economic outlook for the

country. Other speakers, including Zhang Ping of the Chinese Academy of Social

Sciences, projected the real GDP growth rate would slow to as little as 6.5%

next year from a projected 6.8% this year. 

     While Liu projected real growth to ease by 0.1 percentage point to 6.7%

next year, he also projected higher consumer inflation of 2.3%, up from this

year's 1.5%. That indicates that nominal GDP will slow by 0.6 percentage point

year, based on a higher GDP deflator. 

     Some of the economists, including Harrison Hu of Royal Bank of Scotland,

argued that given  increasing online-based economic activities and a tendency

for officials to "smooth out" growth, nominal GDP is a better indication of

Chinese growth.  

     Growth in both the manufacturing and service sectors will slow next year,

while investment will soften and and export growth will be lackluster, Liu said.

     The government's ability to inject vigor into the economy will be

constrained by mounting debt and the threat of financial instability as

regulators continue to push "deleveraging" measures, Liu said, adding that the

fiscal deficit and overall government debt, using a "broad definition," are now

near 10% and 120% of GDP, respectively.

     The economy cannot afford to see any further slowing investment that cannot

be offset by faster consumption growth, and the priority of policymakers is to

revive private-sector investment, Liu said.

     Zhang Ping, deputy director of the National Institution for Finance and

Development, projected a further slowdown in M2 money supply as the People's

Bank of China will have fewer options to ease tight liquidity.

     As recently as 2013, the central bank was able to inject cash through

foreign-exchange assets, which made up more than 80% of central bank assets,

Zhang said. 

     As the Chinese economy has shifted into a more consumption-driven

structure, the weighting of foreign-exchange-backed assets is declining, forcing

the central bank to offset the impact by creating capital instruments with

limited lifespans, including its Medium-Term Lending Facility, Zhang argued. 

     The PBOC's deleveraging drive only worsens the liquidity shortage, Zhang

warned. 

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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