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Four New Trends of China’s Economic Developments in 2017

China’s economy has been growing steadily since 2016, with an emerging “L-shaped” pattern. Although considerable headwinds remain, structural upgrade has become a major growth driver. While China’s economy is likely to largely maintain the current trajectory, there will be a number of new features.

Consolidation of the “L-shaped” pattern

Recently, stabilization has been the most eye-catching feature of China’s economy. Growth for last year came in at 6.7%, lower than the 6.9% pace in 2015. Nevertheless, GDP had grown at 6.7 for three quarters in a row before expanding by 6.8% in the fourth quarter, reversing the downward trend since 2010. This emerging “L-shaped” pattern is an important threshold. After three decades of breakneck pace of growth and following a few years of adjustment, China’s economy has entered a new phase where growth stabilizes at a medium-to-high level.

In contrast to the outsized role of an investment surge in driving growth immediately following the financial crisis, the key to “L-shaped” growth has been structural reform and upgrade. Structural upgrade includes supply and demand, both of which have made significant progress in recent years.

On the demand side, strong consumption has been a key driver of “L-shaped” growth. Last year, quarterly nominal growth of retail sales gradually strengthened. As services consumption also impressed and new consumption patterns emerged, the contribution of final consumption to economic growth reached 64.6%, 4.9 percentage points than that in 2015 and far higher than the average of 51.1% between 2008 and 2014. The stabilization of consumption is estimated to have resulted in a 0.3 percentage-point acceleration in China’s GDP growth. The strong performance of over 1.3 billion consumers has become a main engine of economic growth and a bright spot of China’s economic prospects.

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Content provided by Bank of China (Hong Kong)
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