Predicting China’s 2018 Economic Priorities

The priorities of the world’s second-largest economy are quite likely to shift in 2018, as those in charge of overseeing the Chinese economy seem to prefer a more cautious approach focused on protecting against the threat of a potential financial crisis. As a result, stimulating economic growth is no longer the chief concern of Chinese officials. According to several economic analysts familiar with the new priorities of the government, China’s 2018 economic growth target will remain somewhere around 6.5 percent, unchanged from the target set for the previous year.

Over the past year or so, China has sharpened its focus on limiting capital outflows and tracking down any potential “gray rhinos” — the unaddressed and eminently solvable threats that left unchecked might undermine the country’s manufacturing-driven economy. After capital outflows reached an unprecedented $725 billion in 2016, China instituted several policies designed to limit capital outflow. Those policies, as evidenced by the continued improvement in the nation’s foreign reserve funds, are rightly viewed as successful in achieving the government’s desired outcome.

This risk-averse approach is not necessarily welcome news for the local government officials with growth targets that still need to be met. In order to carry out its economic agenda, however, the current administration has expressed a clear willingness to part with any government official who disagrees with the economic plan as it currently exists. Given its firm belief in the course it has charted, it’s fair to predict that China will keep its interbank interest rates high while implementing additional policies intended to keep its money supply growth in check (a rate of 7 or 8 percent is a reasonable estimate).

China is also quite likely to reduce the pace of infrastructure growth, with its longstanding debt concerns representing the principal reason for the reduction. It’s also likely that the country will continue to shift its focus from an economy built on manufacturing to a consumer and services-based economy. As a number of other analysts have pointed out, growth stemming from such a shift is unlikely without further effort to promote the change, with tax cuts being the most frequently suggested strategy for realizing the potential gains of the ongoing economic transition.

Although Chinese officials are adopting a risk-averse approach with the goal of preventing a financial crisis, most authorities remain confident in the country’s ability to create a protective barrier around its financial and economic systems. In the view of these officials, such a barrier — along with the cautious economic plan it has outlined for this year — will effectively limit the impact of any internal or external shocks in 2018 and beyond.