The big debate over China’s economic future: NDRC vs. S&P
September 26, 2017 Category Macro-economy, Weekly
China’s National Development and Reform Commission (NDRC), the country’s economic planning agency, said last week that the economy was under control and China’s 6.9% growth in the first half was of higher quality and efficiency. The economy was balancing out, with services and domestic demand taking over some of the growth slack from industrial production and exports, the NDRC added.
But just hours later S&P Global Ratings downgraded China’s sovereign rating for the first time since 1999 – from AA- to A+ – citing the country’s greater economic and financial risks. After “a prolonged period of strong credit growth”, S&P said, China’s credit growth in the next two to three years “will remain at levels that will increase financial risks gradually”. The Ministry of Finance promptly accused S&P of misreading China and ignoring its sound fundamentals and growth potential.
The contrast reignited debate over the fundamentals of China’s future – whether the country is leaping over the middle-income trap with a leaner and more sustainable growth model or whether it is on a debt-fueled path to disaster.
The clash of opinions could not have come at a worse time for the leadership in Beijing. The country’s political elite has been trying to paint a rosy picture of the economy ahead of next month’s five-yearly Communist Party Congress, putting the stock market rout and exodus of funds behind them.
This year’s better-than-expected growth performance had boosted the leaders’ confidence. Premier Li Keqiang told the heads of six multilateral agencies, including the World Bank and the International Monetary Fund, that China’s economy had improved and its debt level was “under control”, while the NDRC added that “market confidence has been rising” and “the economic recovery is of high quality.”
Much of the dispute centers on whether China’s 6.9% growth this year – lifted by property and exports – means the country has entered a new boom cycle, the South China Morning Post reports.
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