Spotlight

A1 In recent years, a gradual slowdown of trend growth and the presence of cyclical headwinds have been putting downward pressure on growth. Policymakers have started to accept the trend toward lower rates of expansion and have become more restrained when it comes to propping up growth with stimulus measures, although targeting growth remains an important aspect of policymaking.

In 2015, these factors are likely to continue to affect the country's economic developments. I expect an economic growth target of 7 percent in 2015. I think that will broadly be met, supported by a mildly expansionary fiscal policy and accommodative monetary policy.

A2 A transition to lower growth that would probably be best indicated by growth targets being set gradually lower and met.

A3 I am not too worried about a crisis or hard landing, given the macroeconomic fundamentals and buffers. For me, the largest problem is continued over investment and overcapacity in various industrial sectors and the resulting waste and misallocation of capital and other resources.

Traditional administrative efforts to reduce such overcapacity have not worked well, largely because they rely on the cooperation of parties such as local governments, whose interests do not seem to be aligned with those of the central government entities that lead the efforts.

To really reduce overcapacity, the government should rely less on administrative arrangements and more on the market. The different layers of government should retreat from direct involvement in the economy by means of subsidies and other support. Weaker companies should be allowed to go under and exit the market.

A4 China is still at a stage of development where it can look forward to solid, catch-up related economic growth, as long as it is able to continue with reforms to rebalance the pattern of growth and improve the industrial structure.

A1 The hope is an orderly transition. The outside world is very clear that China has huge growth potential and lots of growth points. The key is whether these forces can be unleashed. A major reason for the enormous down ward pressure China faces is the relatively slow shift away from its traditional investment-driven growth model. Economic restructuring needs to go faster. Once the economy and investment become consumption-driven, there is no doubt that China can achieve 10 years of 7 percent growth.

A2 The most important indicator is the emergence of an economy dominated by consumption. Specifically, that implies a situation where the consumption rate (the ratio of government and household consumption to GDP) reaches 55 percent, the household consumption rate exceeds 40 percent and the consumption rate exceeds the investment rate.

To realize these goals, several changes are needed. The service industry (the producer service industry included) must surpass 55 percent of GDP by 2020. The structure of investment must also change, with investment in the service industry rising while investment in manufacturing falling.

There must also be a change in the distribution of income, so that the middle class accounts for 40 percent of the population by 2020. And the nation must speed up urbanization so that the real urbanization rate would rise from 36 percent at present to 50 percent by 2020.

A3 In the short term, the largest danger is a lack of progress in reform. Short-term economic risks can easily be averted, but the really difficult thing is the implementation of market-oriented reform. Can there be substantial progress in reforming State-owned enterprises? In the financial sector, can private banks expand? And in the area of administrative reforms, can red tape be cut?

A4 There are several potential areas of economic resilience. One is the upgrading of consumption and the emergence of personalized consumption. Others lie in eliminating the huge disparities among regions and between urban and rural areas. Ending these income gaps would mean new sources of growth. However, none of these theoretical areas of "resilience" automatically translate into real benefits. Without breakthroughs in reform, these potential strengths will not be realized.

A1 The expectation of the markets is for China to engineer a gradual slowdown with limited internal shocks to the economy. The markets are not worried about 6 to 7 percent GDP growth, but they are very concerned by rising financial risks and increased defaults.

A2 The key to watch is whether consumption makes a meaningful rebound this year. Meanwhile, growth in the service sector and employment will be watched carefully as indicators of rebalancing.

The key is to rebuild the social safety net to boost consumption. Opening up the service sector to domestic and foreign participation will be the key to achieving faster growth in the sector.

A3 The risk of deflation is rising and companies' real debt burden will lead to a balance sheet-led, sharpers lowdown.

A4 The most resilient segment of the economy is made up of new industries such as e-commerce and China's export sector in general. Other sources of resilience include further deregulation, limits to government interference and continued opening-up to both domestic and external competition.

A1 Expectations - both onshore and off shore are still too wedded to what happens to the GDP growth rate. The singular focus is unhealthy and at odds with what is really going on. China has been making the case of "quality over quantity" and widening the metrics against which progress should be measured. On this score, the soft landing that so many speak of has not yet materialized. At best, China's economic "stabilization" was over stated and confined to narrow areas. Economic growth has basically fallen for four years, and this year GDP growth will slip below 7 percent. To be frank, 5 to 6 percent growth is around the corner. This is simply a reality, but it is not all that important. The days are over when simply mobilizing mispriced resources (land, labor and/or capital) was enough to generate rapid headline growth. Even growth of 6 percent over the next five years will require constructive and smart reforms.

A2 The economy is entering a new phase of development. Economic potential has slowed, the economic model is changing and new risks have emerged. This is a highly complicated story. Each data point has its own relevance and increases visibility in important ways. And that is why the National Bureau of Statistics, for instance, will begin to publish a group of 40 core economic indicators, including debt-to-fiscal revenue ratios and services-to-GDP ratios.

A3 China must embark on policy engineered deleveraging and restructuring. Outstanding credit is near two-and-a-half times bigger than the overall economy. A distinguishing feature of the recent rise in leverage is that it is highly concentrated among corporate borrowers. Corporate debt is high in comparison with similar countries. And the pace of growth is alarming-faster than any other country and pushing China into zones that caused troubles in the United States, Japan and else where in Asia in recent decades. Lacking real price signals, companies are making decisions in the dark and becoming more reliant on credit. It is impossible to see such a huge rise in leverage with out an asset quality problem in the financial sector. More and more debt seems to involves hort-term loans, which are being used as refinancing by companies, and more of the money coming from nontraditional sources. This is why China's ability to buy growth with credit is falling. The People's Bank of China will have to do the majority of the policy balancing act in 2015. The pressure to keep real interest rates down and ensure liquidity in the financial system will be critical. But China cannot allow leverage to rise further, so credit growth will slow.

A4 The resilience of structural drivers such as rising domestic demand, rapid industrialization and urbanization and fast-improving living standards, remain intact. Each year, China will explain a proportionately larger share of global fluctuations, including global aggregate demand, financial markets, its propagating multilateral institutions and even the ideology that underpins them. We have seen a surge in internationally competitive and global-minded multinationals in China. They have low-cost structures, appealing products and ambitious leaders. The innovations of Alibaba Group Holding Ltd, Tencent Holdings Ltd, Lenovo Group Ltd, Xiaomi Corp, Huawei Technologies CoLtd, ZTE Corp and so many others are astounding, and we expect more to come.

A1 In 2014, economic growth has been disappointing and continued to decelerate. Meanwhile, positive reform measures added to growth and financial market risk in the short term. Monetary policy easing, seemingly bold, barely mitigated the economic slowdown or the reform risk. We think that 2015 is likely to see more of this dynamic.

A2 The housing sector has been the main source of downside risk to the economy. Although we maintain our view that housing investment will move to a lower growth trend over the medium term, the risk of a sharp correction or collapse seems to be receding as the easing policy starts to work. Another indication of soft domestic investment momentum was on imports.

A3 We introduced the "China Bumpy Landing" theme four years ago and it continues to play out to our script. In 2015, the currency dimension is an important aspect. We expect the Chinese government to refrain from a return to beggar thy neighbor strategies. Should the economy surprise significantly to the downside, this could change. How other emerging economies weather China's bumpy landing will be determined by structural reform, and in some instances easing geopolitical risks.

A4 Resilient house hold income growth implies a stable labor market and should support steady consumption growth going forward.

(China Daily Africa Weekly 01/09/2015 page1)