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Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

Postal Subscription Code 80-978

Front. Econ. China    2017, Vol. 12 Issue (2) : 167-187    https://doi.org/10.3868/s060-006-017-0008-8
Orginal Article |
China under Uncertainty: Outlook, Counterfactual and Policy Simulations, and Reform Implementation—A Summary of Annual Report (2016–2017)
Kevin X. D. Huang1(), Guoqiang Tian2(), Yibo Yang3()
1. Department of Economics, Vanderbilt University, Nashville, TN 37235, USA; Institute for Advanced Research, Shanghai University of Finance and Economics, Shanghai 200433, China
2. School of Economics and Institute for Advanced Research, Shanghai University of Finance and Economics, Shanghai 200433, China; Department of Economics, Texas A&M University, College Station, TX 77843-1372, USA
3. Institute for Advanced Research, Shanghai University of Finance and Economics, Shanghai 200433, China
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Abstract

China’s macroeconomy is surrounded by increased uncertainties while facing persistent downward pressures entering year 2017. Major external challenges are imposed by the chaotic political climate and disorderly retreat from globalization of the US accompanied with the impending FED rate hikes, which may trigger a destructive trade war and exert pressures on RMB depreciation and capital flight. Remaining ingrained in major internal challenges are the gridlock risks accumulated from excessive financialization of real estate sector and swelling housing market bubbles amid escalating debt levels, and more fundamentally, the continued off-real-to-virtual movement in the general economy and ascendancy of government over market in resource allocation. Based on IAR-CMM model, which takes into account both cyclical and secular factors, the baseline real GDP growth rate is projected to be 6.5% in 2017 (6.13% using more reliable instead of official data). Counterfactual analyses and policy simulations are also conducted to highlight the convoluted uncertainties surrounding China’s macroeconomy. Through the lens of these analyses, we identify a root cause of the weak outlook as the persistently distorted economic structure due to procrastination in reforms of the institutions and governance, which not only impairs China’s growth potential but also limits the power of its recent stimulating policies while exacerbating their side effects. Key to successful economic restructuring in the face of adversely evolving demographics are market-oriented reforms, with well-designed strategies to balance short-term stabilization and long-run development. Such reforms should hold center stage in China’s transition towards a modern free market economy and regulatory state.

Keywords macroeconomic outlook      uncertainty      alternative scenarios      policy simulation      reform      development      governance     
Issue Date: 17 July 2017
 Cite this article:   
Kevin X. D. Huang,Guoqiang Tian,Yibo Yang. China under Uncertainty: Outlook, Counterfactual and Policy Simulations, and Reform Implementation—A Summary of Annual Report (2016–2017)[J]. Front. Econ. China, 2017, 12(2): 167-187.
 URL:  
http://academic.hep.com.cn/fec/EN/10.3868/s060-006-017-0008-8
http://academic.hep.com.cn/fec/EN/Y2017/V12/I2/167
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