Data Sessions: How has China’s economy fared in the past 5 years?

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The past five years could be seen as a foundation for China’s economic reforms as the country has been trying to emerge from a “deep water zone” of change. The marine term was first mentioned by Chinese President Xi Jinping in late 2012 when the reforms came up against some hard issues.

With President Xi at the core of leadership, how has the economy been faring?

The main concern is quality growth with an eye on sustainability. The focus is supply-side reform, which is set to tackle overcapacity, clear up excessive housing inventory, curb debt and lower business costs.

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China will cut steel capacity by 30 million tons and coal capacity by 150 million tons this year. That’s after the country wiped off 170 million tonnes of excessive steel production and 800 million in coal output in the past five years.

China has added 29 trillion yuan (4.6 trillion US dollars) to its GDP in the past five years, that’s about 7.1 percent growth per year. Consumption’s share in the economic output rose to 58.8 percent from 54.9 percent five years ago.

However, the debt issue remains. The deleveraging drive is to tame the financial risks to the economy. That means China wants to reduce debt, cap the level of bad loans in banks, and keep a tight grip on shadow banking.

Financial deleveraging was re-emphasized recently by the national banking regulator. That is likely to be a multi-year process. The main targets include local government financing and highly leveraged companies.

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That would put pressure on bonds, but the central bank will take measures to keep short-term money market rates stable. For the longer term, it should result in higher quality growth, which will make government bonds more attractive than corporate bonds.

That means higher lending costs, which will hit high borrowing fast-expanding companies and small cap listed firms. That’s the short-term pain of the deleveraging drive, and the government work report on Monday says China will boost coordination among financial regulators to prevent systemic risks.