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Economic Outlook 2016: China

Ai Uchida

In the second installment of our five-part series on the economic outlook for major countries, we turn to China. NHK WORLD asked an expert what he expects for the world's second-largest economy in 2016.

Naoyuki Yoshino is Dean of the Asian Development Bank Institute. He first went to China in 1991 to promote policies for growth. Since then he's seen the economy shoot up, and slow down.

Uchida: What kind of year are you expecting for China in 2016?

Yoshino: I think it's 6.5, 6 percent will be optimal in China... domestic consumption and investment, if their economy and expectations continues. It used to be 7 percent, and now many people believe it is 6.5 or so. I think that Chinese export-oriented growth will be slightly damaged, because the slow growth of international market.

But some economists in China hopes domestic investment will take over those kinds of exports, especially in middle-class-income people are growing, then consumption will grow. And if they purchase refrigerators, lots of good things, then domestic investment grow. So optimistic people say 6.5 or 6 percent can be achieved. So it depends on how domestic market can grow.

Yoshino says one of the keys to maintaining stable growth will be China's relations with its neighbors. He points to an overseas infrastructure-development plan known as the Silk Road project.

Yoshino: I think China is very much interested in connectivity with other countries south, west, and so on. And Silk Road plan is also one of those schemes. So they are planning to have big road network.

I think it is very good for tourism. Then, to developing those small businesses in the region and selling those products, then they need money also. So not only constructing highways, but providing money to small businesses and hotels, lodgings, and so on. So if the spillover effect becomes very big, then the Silk Road planning will be successful. But on the other hand, just constructing road will not make them a success.

On the downward pressure to the economy, Yoshino believes China will largely avoid the negative effects of the US Federal Reserve's rate hike. But he warns of domestic risks, especially possible overheating in the property markets.

Yoshino: China has over-investment in real estate industries, because Chinese local government, their main revenue is coming from property tax revenue. And allocation of tax revenue between central government and local governments are very different from Japan. Income tax, corporate tax, lots of them goes to central bank rather than remaining in local government.

So if local government wants to keep on investing their things, then they prefer rising price of housing price and property prices. And then the government has looked at the huge loans, increase of loans to real estate sectors. Then local government started to borrow money from non-bank financial institutions. That has kept on flowing down into the local government. So there is a possibility of bubble in construction and housing market.

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