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China Growth Estimates Up as Leaders Mull 2017 Economic Plan

  • Policy makers debate GDP growth target, excess capacity cuts
  • Laurenceson: ‘It’s pretty hard to feel pessimistic about 2017’

As China’s leaders huddle in Beijing to map out economic plans and policies for next year, optimism over the growth outlook is increasing as stimulus and prospects for stronger global demand buoy sentiment.

Economists have raised first-quarter growth estimates to 6.6 percent, from 6.5 percent a month earlier, according to a Bloomberg survey. Forecasts for 2016 full-year expansion jumped to 6.7 percent from 6.6 percent in September, while 2017 projections climbed to 6.4 percent from 6.3 percent over the period.

The mood shift since January, when surging capital outflows and a sinking yuan roiled global markets, is sweetly timed for leaders meeting this week in Beijing to discuss matters from growth targets to unleashing greater consumption. Threats to their aim of maintaining rapid expansion ahead of a crucial party congress late next year still loom, such as soaring debt and risk of confrontation with U.S. President-elect Donald Trump over trade and Taiwan.

"Activity has stabilized on the back of the housing market rebound and fiscal spending on infrastructure investment, while prices have recovered as a result of more determined cuts to over-capacity," said Julia Wang, an economist at HSBC Holdings Plc in Hong Kong. "In recent months we’ve started to see some positive second-round impact as business profits rebound and private investment started to stabilize."

The nation’s annual Central Economic Work Conference concludes in Beijing Friday after discussions that also include plans to cut excess industrial capacity, further open the economy, and work to attract foreign investment. Several policy makers including People’s Bank of China Deputy Governor Yi Gang are scheduled to speak about the decisions at a related forum Saturday sponsored by the Center for International Economic Exchanges.

The gathering is for senior policy makers to forge a consensus on some of the nation’s most important issues in the next year. Present will be members of the Communist Party’s Politburo, including President Xi Jinping, ministers, provincial governors, top officials from the nation’s judicial system, and heads of state-owned enterprises. 

Xi has already said he’s certain China will achieve its major economic and social objectives this year. With state-led investment roaring, exports cushioned by a weaker yuan and retail sales accelerating, the expansion is on pace to land smack in the middle of the 6.5 percent to 7 percent full-year objective.

Read more: Xi on reaching target, Politburo on new priorities

"Over the last two years household consumption has been resilient in the face of serious weaknesses in some parts of the economy, notably real estate and heavy industry," said James Laurenceson, deputy director of the Australia-China Relations Institute at the University of Technology in Sydney. "With fairly clear evidence that areas of past weakness are now doing better, it’s pretty hard to feel pessimistic about 2017."

After snapping more than four years of factory-gate deflation in September, economists also have higher hopes for prices. They increased estimates for producer prices, indicating gains will peak at 4 percent in the first quarter and average 2.5 percent for the whole year, Bloomberg’s survey shows. A month ago they projected a 3.1 percent jump in the first quarter and 1.6 percent for all of 2017.

Investors seem to be betting that U.S. policies to boost fiscal stimulus through tax cuts and infrastructure spending, which will spillover and benefit China, will be implemented while Trump’s tough talk on trade will fade away, according to David Dollar, a senior fellow at the Brookings Institution in Washington and former U.S. Treasury attache to Beijing.

Still, the "striking" decline in China’s foreign exchange reserves is a reminder that financial volatility remains a risk, he said. The stockpile, the world’s largest, decreased $69.1 billion to $3.05 trillion in November for the biggest drop in 10 months.

Those concerns have been offset by three straight quarters of 6.7 percent growth this year, along with strengthening across indicators ranging from manufacturing to retail.

After defying the bears again this year with an economic turnaround that surprised many, optimism over prospects for 2017 "may be a touch overdone now," said Mark Williams, chief Asia economist at Capital Economics Ltd. in London and a former U.K. Treasury adviser on China. "The current strength cannot be sustained and the risk now is that many don’t appreciate how soon growth will slow again," he said in a recent report.

— With assistance by Kevin Hamlin, Cynthia Li, and Yinan Zhao

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