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Growth has strengthened somewhat in 2017, driven by services and some strategic industries, but is projected to soften in 2018-19, as exports decelerate. Industrial production growth has been picking up and profits have improved on the back of higher producer prices. The share of processing trade is declining but demand for services, in particular on account of tourism and foreign intellectual property, will remain high. Exports will slow somewhat but remain robust, making for a stable current account surplus. Infrastructure investment will also remain strong, notably to meet the targets of regional development initiatives. Housing investment will slow somewhat following a series of measures to restrict demand.
The monetary policy stance will continue to be neutral with a tightening bias even though selective easing will be implemented to improve access by small businesses and agriculture to credit. Attention is increasingly shifting towards enhancing financial stability as capital outflows moderate and the exchange rate is stabilised. Fiscal policy will remain supportive with the launch of multiple large-scale infrastructure projects, but public spending on education, health and social policies deserves greater emphasis.
Shadow banking is being reined in, but bank lending continues to grow unabated, increasing the probability of future bad loans. Corporate debt has stabilised relative to GDP at a high level but household debt is rising, though from a very low base. House price increases have moderated, but prices remain high in several large cities. Banking sector stability is being strengthened by new prudential measures discouraging interbank lending. The cut in compulsory reserve ratios for banks that lend for inclusive purposes, such as agriculture and small businesses, is expected to boost those banks’ profits.
Economic Survey of China (survey page)