One of the benefits of China shifting its economy away from traditional manufacturing is that the country’s economic growth will be less reliant on borrowing, an economist said.
“[China is] trying to boost growth of the new economy, as the new economy is less credit intensive. That’s also helping deleveraging efforts in China,” said Robin Xing, Morgan Stanley’s chief China economist.
Speaking to CNBC on the sidelines of the Morgan Stanley China Technology, Media and Telecoms Conference in Beijing, Xing spoke against the backdrop of longstanding concerns about the sustainability of three decades of breakneck debt-fueled growth in the world’s second-largest economy.
Morgan Stanley’s GDP forecast for China is 6.5 percent this year. China’s official 2017 growth target had been around 6.5 percent, and that’s likely to remain unchanged this year, Reuters reported last Thursday, citing unnamed sources.
In 2016, China’s growth was 6.7 percent, which was the slowest in almost three decades.
China has been fighting debt for years, but with little success so far as it balances economic stability against the fallout that would come from a sharp deceleration.
However, recent comments from Beijing indicate that the country is engineering a moderate slowdown and changing up growth drivers. At the opening of the 19th Chinese Communist Party Congress in October, President Xi Jinping said his country will move from high-speed to high-quality growth.
Last week, state news agency Xinhua reported China is planning to build a 13.8 billion yuan ($2.13 billion) technology park for the development of artificial intelligence.
“If you look at all this new economy, it’s all about connectivity, about productivity,” said Xing.
A few years ago, 6 Chinese yuan (92 U.S. cents) in debt generated 1 yuan (15 U.S. cents) in GDP, but now it just requires 3 yuan (46 U.S. cents) of debt to do the same, he added.
Xing said the contribution from consumption will continue to grow and the pace of growth for China’s debt-to-GDP ratio is expected to mostly stabilize in the second half of 2019.
Already, the services sector is creating more than 10 million jobs a year, which is more than off-setting the cumulative 4 million job losses in old economy sectors such as machinery and steel, he said. Those industries have been witnessing layoffs due to an official crackdown on over-capacity.
There will “be lower risk, slower pace of growth, but better quality,” said Xing.