News at Smith

Sketchy Growth Prospects in China

Apr 28, 2016
World Class Faculty & Research


SMITH BRAIN TRUST — Does China’s first quarter GDP growth of 6.7 percent signal that the country is solidly on course for growth between 6.5 and 7 percent per year by 2020 — a key benchmark to its recently adopted five-year plan? “Let’s be cautious,” says management professor Anil K. Gupta at the University of Maryland’s Robert H. Smith School of Business. From a recent CCTV America interview, he gives two caveats: China’s stimulus plan to spur rapid credit growth strengthened that first-quarter figure. But the credit spree (property sales by square footage, for instance, increased over the previous quarter by 33 percent) reportedly approaches levels during the global financial crisis. “Now the question is: Can and should the effect of the stimulus be sustained?” Secondly, China’s shift from an investment-to-consumption economy “is a change that is brutally hard,” Gupta says. Subsequently, “2017 is likely to see somewhat slower growth than in 2016.”

“So if 2016’s GDP is 6.5 and somewhat slower in 2017, that would cause some caution about whether the five-year plan, low-end target of 6.5 can actually be achieved,” Gupta says. “It’s going to be very challenging.” Meanwhile, which China industries will struggle in the next five years? “All things connected to construction — steel, cement, glass,” Gupta says. “Also, expect to see zero growth in the auto sector” due to the pollution in the larger cities prompting the government to limit the volume of vehicles on the road.” Conversely, he says, “look for growth in the consumption areas and in services, including health care, financial services (eventually a high growth sector), and all things connected to travel and tourism.”




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