Although many industry experts have shown pessimistic views towards the future of the Chinese economy, some optimists still suggest that Chinese authorities will not close their eyes on the economic hard-landing and claim that the Chinese government has plans to re-charge its stagnant economy. Professor Li Haitao, CKGSB Associate Dean, is one of such optimists. He maintains the positive view on the Chinese economy and forecasts that “China would safely achieve its 7 – 7.5% potential growth rate objective”.
From local government debt and shadow banking to the real estate bubble and first corporate default declaration, a voice signalling the risk of the Chinese economy is rising. Global financial institutions have consecutively downgraded their economic growth forecast. Despite these pessimistic views on the Chinese economy, some optimists still maintain their point of view that the Chinese government authorities will not overlook the economic hard-landing and take appropriate economic measures to recharge the stagnant economy. Professor Li Haitao, Associate Dean of CKGSB, is also one of such representative optimists.
Professor Li forecasted that “China would safely achieve its 7 – 7.5% potential growth rate objective”. As reasons for such claim, he pointed out the Chinese government’s economic reform plans. So far in China, the government has been taking control of market prices, interest and exchange rates and monopolized some of the key industries including banking, communication, and energy, taking excessive involvement, which has caused a waste of resource allocation. He pointed out that some private industrial sectors such as the internet industry, which has relatively more freedom from government control, are showing dynamic and creative development. Professor Li expected that fostering private sectors would lead to the birth of the next Alibaba and Tencent.
Professor Li also claimed that the biggest threat to the Chinese economy is the failure of its economic reform. To successfully navigate through the next 10 years of China’s economic situation, the Xi Jinping government needs a strong set of reformation plans. With regard to the first corporate default declaration in China, Professor Li still maintained a positive view that it will provide a ground for the Chinese economy to become more mature. He explained that admitting the default declaration from over-productive companies will lead to more companies to default, which would eventually enhance the awareness of Chinese corporate bond investment risk.
He also dismissed the worries about the possibility of financial crises caused by the real estate market since this real estate bubble is still a partial phenomenon and it’s hard to be applied nationwide. In addition, the government has political means to alleviate the current real estate market control. With regard to the local government debt often referred to as a detonator for economic crisis, Professor Li explained that the risk level is not as significant. In a short term, Professor Li forecasted that the Chinese economy may face several problems with ups and downs in the economic cycle but would continue to grow in a long term.
Read [Interview] CKGSB Associate Dean, Li Haitao: “Private Economies Can be Invigorated by Innovation ... Anticipation over the Rise of New Businesses as the Next Alibaba and Tencent” on Aju Business Daily website