China's Economic Outlook 2015

AmCham China's experts weigh in on what's ahead

Much of life in China is colored by numbers, from real estate prices affecting marriage prospects to air quality index numbers setting the mood for the nation's capital. Stop by one of the fortune tellers that set up shop around Lama Temple in Beijing, and they'll turn to a complex system of soothsaying based on dates and numbers to determine a prognosis of fortune or despair.

AmCham China turns to its own sages, our esteemed pool of members and event speakers, to run their numbers and provide a spectrum of opinions on what 2015 may hold for China's economy. The past year had its ups and downs, from scaled back expectations on gross domestic product (GDP) figures to the exciting agreements reached at this year's Asia-Pacific Economic Conference in Beijing. Each of our prognosticators offers a different take on what's in store for the year ahead.

ANDREW POLK

Resident Economist, The Conference Board

Our China outlook for 2015 is largely for more of the same: weakening economic growth, a tough business environment, and only incremental moves on reform. We project that GDP growth will slow to 6.5 percent and that the macroeconomic climate will be characterized by three key features. First, greater disparity among regional growth rates will emerge; provinces that have relied on heavy industries or high levels of real estate investment will be the hardest hit. Second, the property market will remain sluggish as developers work through inventory. Finally, slowing economic growth will be punctuated by regular bouts of mini stimulus – a process that will hamper the reform agenda.

DAN HARRIS

China Attorney, Harris & Moure, China Law Blog

The government's top priority is the contentment of its citizens, not the slowing economy. This shows through in the government's sustained efforts to boost wages, including its increased tolerance for union-style labor activism at foreign-owned factories, at the risk of compromising China's factory-to-the-world status. I also expect China will get tougher on foreign companies doing business in China, the riposte of most countries when faced with a slowing economy. The antitrust investigations of foreign auto brands and the anti-corruption probe of GlaxoSmithKline are examples of the heightened scrutiny likely to lie ahead.

NICHOLAS LARDY

Anthony M. Solomon Senior Fellow, Peterson Institute for International Economics

At its Third Plenum in November 2013, the Chinese Communist Party endorsed wide ranging economic reforms that, if implemented, would have a highly positive effect on China’s growth over the medium term. China’s long-term economic growth since reform began is largely because markets came to play an ever larger role in resource allocation and because of the emergence of a dynamic private sector. In these reforms, the party committed to “eliminate all but natural monopolies,” such as electric power distribution. This would allow the entry of private players in the remaining areas of the economy where the state still dominates. Given the higher returns of private firms, demonopolization could provide a substantial boost to China’s growth, allowing it to continue to grow rapidly in the next few years.

ANNE STEVENSON-YANG

Managing Principal, J Capital Research

China has entered the “lost decade” of slowly amortizing accumulated debt and growing into over-capacity in everything from cement and steel plants to housing stock. Flat to negative growth will mean less investment capital, less optimism, more tightly scrutinized budgets, belt-tightening for employees. This could also be a period of opportunity for those who appeal to the consumer’s demand for higher quality, drive through the new distribution channels, gain market share, and raise profitability. In other words, the era when companies were willing to realize losses in return for market share is over.

BRIAN JACKSON

China Economist, IHS

China’s economy will continue to face downward pressure in 2015 due to persistent and substantial headwinds related to the excesses in the financial sector since 2009. Housing will slowly crawl out of its cyclical downturn, although not fast enough to accelerate headline growth. Beyond headline growth, performance will be highly varied, reflecting China’s gradual transition towards a services and consumption oriented economy. Over the medium-to-long term, China’s reform program and integration efforts with regional partners should provide a productivity dividend, although that is contingent on successfully translating today’s encouraging policies into meaningful actions tomorrow.

YAN SE

Professor of Applied Economics, Guanghua School of Management, Peking University

My forecast for China's economy in 2015 is stability. With an estimated 7.3 to 7.5 percent gross domestic product growth for 2015, the past three decades of rapid economic growth have transitioned to a "new normal."  The next year will bring a series of new government policies and reforms that will stimulate economic growth and drive China's transition up the value chain. I think 2015 will reap the benefits of the strategic, structural adjustments implemented over the past three years. The recovering global economy will have positive effects, as countries like the US will increase its foreign direct investment into China and better investments opportunities will become available for Chinese firms going global.

EGIDIO ZARRELLA

Clients and Innovation Partner, KPMG China

Chinese manufacturers are undergoing a shift in industrial production from “made in China” to “innovate in China for China.” Given the huge volumes, many companies are likely to focus on the Chinese market and design products that are tailored for China. Meanwhile, the goal of both government and businesses is to continue to develop China into a global e-commerce player, in line with the country’s transition from an investment-heavy growth model to a consumption-driven model. We believe the momentum will continue in 2015 and contribute to overall economic growth.