Supportive policies to boost growth

A technician works on the production line of an energy equipment manufacturer in Nantong, Jiangsu province. (XU CONGJUN/FOR CHINA DAILY)

Efforts to bolster corporate sector, lift consumption, says economist

China's efforts, focusing on supporting the corporate sector and consumption, will help achieve economic growth in excess of 6 percent this year, despite headwinds from a sluggish and uncertain external environment, a top economist said on Friday.

In an exclusive interview with China Daily, Pinelopi Goldberg, chief economist of the World Bank, said that supportive fiscal and monetary policies would support China's growth targets. However, global growth is likely to slow further this year due to downside risks from sharper-than-expected decelerations in major economies and bouts of financial market stress, she said before the China Development Forum (CDF) 2019 in Beijing.

This year, China has set a growth target of between 6 and 6.5 percent, much lower than the "around 6.5 percent" goal in 2018, when the GDP growth came in at 6.6 percent.

"We do not yet see a major threat to China's goals this year," said Goldberg. "We agree with Premier Li Keqiang's comments in the annual Government Work Report this year that China should at present refrain from using a deluge of stimulus policies."

Goldberg said that China's plan to reduce 2 trillion yuan ($297.5 billion) of taxes and fees this year is an attempt to provide some relief to the corporate sector and support smoother economic rebalancing.

Recently, global discussions have been on the rise regarding the extent to which a country's fiscal policy can and should do more to bolster growth in the context of sustained low interest rates.

"China has the fiscal space and so it is appropriate that it consider using it, with due caution, to counter global economic headwinds," Goldberg said.

From her point of view, tighter financing conditions, lingering trade tensions, and elevated policy uncertainties were the main causes for global growth losing significant momentum in 2018.

Incoming data suggest continued softness at the start of the year, particularly in international trade and manufacturing activity. Activity in some major economies, such as the eurozone, has weakened, said the economist, who was the Elihu Professor of Economics at Yale University.

Reflecting a deterioration in growth prospects, major central banks have signaled a more dovish policy stance, with the US Federal Reserve apparently placing its tightening cycle on hold and the European Central Bank implementing new measures to stimulate credit and activity.

Mean while, many economies also face the challenge of rising debt, warned the World Bank economist. She suggested policymakers strengthen fiscal frame works, improve the efficiency of public expenditure and public investment management, and develop domestic financial systems.

In China, the government is taking measures to rein in credit growth and shadow banking and prevent wasteful public investments. Policies to improve the business climate have also been put in place, including the newly approved Foreign Investment Law.

The moves will reduce financial risks and contribute to an improvement in corporate profitability and productivity, although some easing of macroeconomic policy is still warranted, according to the World Bank economist.

Many economists have mentioned the trade-off between de-risking measures and short-term economic activity, as the progress toward deleveraging may be slower in the short run when the authorities are concerned about growth stabilization.

"China should not lose focus in reducing financial risks, and we have confidence that it will succeed in this difficult task," said Goldberg.

In an earlier interview with China Daily, Zhu Min, a Chinese economist and a former deputy managing director at the International Monetary Fund, said that China's debt level has stabilized since last year, although deleveraging is not an easy task to achieve.

"Currently, we see a little bit of easing of monetary policy, but it is still in a neutral position, which fits the macroeconomic situation quite well," said Zhu.

In the long run, beyond measures to strengthen productivity growth and sustain a more balanced growth, Goldberg suggested China address the critical challenges of a rapidly aging population and environmental degradation,

She agrees on China's priority on "competitive neutrality" to level the playing field and create a more fluid market for foreign investors' entry and exit, along with the government's commitment to further reform and opening-up.

"The country's current efforts to further open up the trade and investment environment will also contribute to encouraging competition," said Goldberg, who is an expert on the effect of free trade on developing economies.