Trade frictions and the weakening global economy are undermining exports and creating new uncertainties for the Chinese economy as it continues to slow, a new report from the Organization for Economic Cooperation & Development (OECD) said.
The OECD report recommended government policy reforms focused on long-term strategies to move the economy toward greater domestic consumption and services, and ensuring that future growth is sustainable, greener and more inclusive.
The OECD “Economic Survey of China” projects that despite the slowdown, China’s economy should grow in excess of 6 percent this year and next. It also sees continuing alignment with more advanced economies.
Similarly, a new report from Global Insight by IHS Markit said China’s government should be able to stabilize growth with measured stimulus policies and an agreement with the U.S. to end the trade war.
The “April Forecast Flash” from chief economist Nariman Behravesh and executive director of global economics Sara Johnson said, “Early indications are the government’s policies are working. Real GDP increased 6.4 percent year on year in the first quarter and March data signals renewed momentum.”
However, some recent data points to continued weakness. Merchandise imports fell 7.6 percent year on year–a sign of weak domestic demand, although exports jumped 14.2 percent.
The OECD survey, presented in Beijing by its deputy secretary-general Ludger Schuknecht, stressed rising financial risks from high corporate debt and suggested China prioritize the creation of a single product and labor market to boost productivity and inclusiveness.
“China continues to be the major driver of world economic growth and convergence with advanced economies continues, despite the slowdown,” Schuknecht said. “Yet China is at a crossroads, facing serious domestic and external challenges to maintaining its strong position over the long-term. Policy should seek to ensure a better functioning economy that delivers stable and inclusive growth for all.”
The study highlighted the need for more balanced trade and investment, with policy aimed at lowering import tariffs and dismantling non-tariff barriers. Barriers on the entry and conduct of foreign firms, in particular requirements to form joint ventures or transfer technology, are some that could benefit from review. Anti-monopoly rules and enforcement can be strengthened and public procurement processes could be more transparent and open, OECD said.
Other measures, OECD suggests for boosting economic efficiency include stronger protection of intellectual property rights, gradual removal of implicit guarantees to state-owned enterprises and reduction of state ownership in commercially oriented, non-strategic sectors. To make growth greener, the survey recommended that greater enforcement of environmental regulations, increased fines for polluters and higher environmental taxation, particularly on fossil fuels.