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Ten predictions for China's economy in 2015

2014-11-05 15:11 China.org.cn Web Editor: Qin Dexing

Editor's note: Warren Buffett said the future is always uncertain. As China is in a special phase of transformation from an old norm to a new one, it is very difficult to make future predictions, because every rule and routine would probably be broken and many "impossibilities" may become realities in the new era. Based on serious discussion and selection, here are the 10 most important predictions for the next year.

1. The speed of economic growth will not be locked at 7.5 percent. The growth goal will be more flexible.

Next year, the growth target will very likely be reduced. The conditions that didn't exist in 2013 have now been met.

First, slower economic growth is already a consensus. To preserve the 7.5 percent growth is very hard. In history, the central government lowered the growth goals twice, in 1998 and 2011, both times due to the pressure from economic downturns. At the end of 2013, the reason why we still maintained that the goal would not be lowered was because of the core theory that the real estate market is on the rise so the economy is on the rise. But this year is different. The real estate market remains at a low level and the economy continues to grow at a 7.5 percent rate. The full year's growth may reach 7.3 - 7.4 percent. So it is reasonable to lower the goal.

Second, the flexibility for government policies has clearly shrunk. Even the "directed loosening" monetary policy will have expansion effect on "total volume", but the expansion of the "total volume" has its ceiling. Domestically, debt pressure is increasing, and internationally, the U.S. Federal Reserve will raise interest rates and put the RMB exchange rate under pressure. Those internal and external factors and restrictions will directly reduce the room for flexibility in policies.

Third, central government policies are gradually adapting to the new status, the core spirit is to recognize the reality of economic growth, endure the pain of structural adjustment, avoid large-scale stimulus package and promote the transformation and upgrading of the economy through reform.

As for whether next year's goal is 7 percent, 7.2 percent, 7.3 percent or 7-7.5 percent, this will have to be decided by the end of the year's central government economic work meeting. From what can be seen right now, the biggest possibility is the "7-7.5 percent," which is accordance with Premier Li Keqiang's approach of range management and flexible goals.

2. The Federal Reserve will raise interest rates to enable the U.S. dollar to appreciate while the third wave of the global financial crisis will enter a climax.

The U.S. Federal Reserve will start raising interest rates in 2015. But the precise timing may not be as early as some market observers predict. It probably will happen in the middle of the year. Since the current inflation expectation is stable and financial risks are not yet worrying, the Federal Reserve doesn't want to quit early and if it quits early, this will make a stronger U.S. dollar which will not benefit American interests. But no matter what, the period of rising interest rates will come sooner or later. As they raise the interest rates, the U.S. economy will speed up the recovery process, which will increase the international capital floating back into the countries led by the United States. The global capital market will reshuffle again: The U.S. dollar will continue the big appreciation period since 2008 and commodities will weaken while venture assets will be revalued again.

The key reasons are: first, after the financial crisis, the developed countries such as the United States want to rebalance, the core of which is deleveraging and raising the savings ratio. The result will be that the new markets' surplus against developed markets will largely be narrowed and the function which the external trade will use to pull the economy up will be weakened. Second, the United States relied on systems and technologies to revive the economy domestically at first after the crisis and the economic prospects are relatively optimistic.

On the other side, emerging market countries will lose the engine of external demand and be haunted by aging populations and resource shortages. So the economic growth prospects are very worrying. It will increase the gap between the U.S. dollar and the currencies of new markets.

The 2008financial crisis has not ended yet, and we predict the Federal Reserve's interest rates raise will send the third wave of the crisis into a climax.

3. Anti-corruption efforts will be strengthened and the rule of law will strengthen the systemized anti-corruption even more.

Since the 18th CPC National Congress, anti-corruption campaign has been constantly breaking "traditions" and "taboos." Before the congress, 32 officials above the provincial level were taken down, but after the congress, more than 50 of such official rank were taken down, among them a former Central Committee Political Bureau member, a vice president of the Central Military Commission and a vice president of the Chinese People's Political Consultative Conference.

In 2015, the anti-corruption efforts may be strengthened while government expenses will be further reduced. Fighting corruption will be the new norm in China's economy, along with reform. Otherwise, one big "tiger" may fall today, but tomorrow more tigers will fight back. The reform must continue and the laws must be made to protect tiger fighters and make sure the big tigers have nowhere to escape to. It will turn the rule of man into the rule of law. As Wang Qishan, secretary of the Central Commission for Discipline Inspection, said in his inauguration: "We must cure the symptoms and the root causes of diseases at the same time. Now our focus is to cure the symptoms, which will win us some time to deal with the causes."

In the future, the central government will turn to face corruption under the rule of law, instead of the occasional anti-corruption campaigns. The rule of law is the essential way out in fighting corruption.

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