The Bank of Korea: "China to Achieve Stable Growth Supported by Fiscal Capacity, Employment, and External Demand"

Bank of Korea Overseas Economic Focus

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] Although there are concerns about the slowdown in China's economic growth, it is forecasted that after the growth rate moderates, stable growth will continue.

On the 5th, the Bank of Korea stated in its 'Overseas Economic Focus' report, "Recently, as COVID-19 variants have spread worldwide again, China's economic indicators for the second half of the year have been sluggish, raising concerns about a slowdown in growth. In China, uncertainties are increasing due to the resurgence of COVID-19 and expanded corporate regulations focused on big tech, causing a sharp decline in the stock market." However, it added, "Considering all factors comprehensively, China's economy is expected to continue stable growth after the growth rate gradually moderates."

The primary reason why China's growth is expected to stabilize again is the government's fiscal capacity. Considering the fiscal execution capacity in the second half of the year, the relatively low government debt ratio compared to major countries, and the authorities' vigilance against growth slowdown, there is sufficient short-term stimulus capacity. The continued improvement in employment, such as the unemployment rate falling to pre-COVID-19 crisis levels and the continuous increase in new employment, also supports growth.

Another factor contributing to the recovery of China's growth is the favorable external conditions, such as a significant increase in demand for manufactured goods due to economic recovery in advanced countries like the U.S. and Europe.

Major international organizations and investment banks (IBs) expect China to grow more than 8% this year and in the mid-5% range next year.

The recent concerns about China's growth stem from the slowdown in major real economy indicators, strengthened corporate regulations by Chinese authorities, and rising raw material prices. Due to the resurgence of the Delta variant, nationwide strengthened quarantine measures delayed the expected recovery in consumption. As the Chinese government tightened corporate regulations, market volatility increased with a sharp drop in stock indices, and the rise in metal raw material prices?on which China's economy heavily depends for imports?raised the possibility of a sharp increase in producer prices, causing concerns about weakening corporate profitability.

The Bank of Korea explained, "Although growth momentum has somewhat slowed compared to initial expectations, the spread of the Delta variant is being controlled early, and consumption is expected to recover again. If herd immunity is achieved before the Winter Olympics, consumption is likely to recover rapidly." It added, "Meanwhile, the policy of strengthening corporate regulations is likely to continue in the medium to long term at a level that does not significantly hinder growth."