|GDP growth fell in early 2014 as investment slowed in response to tighter credit conditions. In particular, restrictions on mortgage lending and land development continue to curb real estate investment and sales. Measures to phase out excess industrial capacity work in the same direction. However, investment will continue to be supported by a greater emphasis on urbanisation needs and the opening up of sectors previously off limits to private investment. Overall, growth is expected to remain a bit above 7¼ per cent over the next two years. The current account surplus is set to shrink to 1¼-1½ per cent of GDP.
The pace of structural reforms will influence short-term outcomes, the challenge being to keep up sufficient momentum to reduce imbalances whilst avoiding overly abrupt adjustments that might trigger a crisis. Risk needs to be better reflected in the price of funding. Orderly defaults by failing borrowers would help sharpen risk perceptions and lead to more efficient resource allocation without endangering financial stability. Sub-national government debt accumulated through investment vehicles should be incorporated in budget management and sub-national bond issuance would free up bank lending to SMEs.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.