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The Annual Report of China's Macroeconomic Analysis and Forecast (2017): Risk Assessment, Policy Simulation, and Governance officially Published
March 20, 2017

The Annual Report of China’s Macroeconomic Analysis and Forecast (2017): Risk Assessment, Policy Simulation, and Governance issued by the Institute for Advanced Research of Shanghai University of Finance and Economics has recently been published by Shanghai University of Finance and Economics Press. According to an interpretation of the overall macroeconomic situation of China in 2016, the book conducted various quantitative analyses of counterfactual and policy simulations based on IAR-CMM model and predicted that China's economic growth still faces rather large pressures in 2017. As an important research result produced by the research team of “China Macroeconomic Analysis and Forecast” of the IAR, the book demonstrates the collective intelligence of the research team, including Guoqiang Tian (project leader), Tao Zhe (academic advisor), Kevin X.D. Huang (chief expert), and other members, being a tribute to the centennial anniversary of SUFE.

The book was revised based on the report released on the annual report launch and summit of 2016-2017 China Macroeconomic Analysis and Forecast; through quantitative analysis of the downward trend of China's economy in recent years, the baseline forecasts indicate that, in 2017, real GDP growth will be about 6.5%, or 6.13%, based on more reliable instead of official data; CPI will increase by 1.9%, PPI 2.5%, consumption 10.1%, investment 8.1%, M2 12.9%, import 0.2%, while export will decrease by 0.1%, and RMB exchange rate will depreciated to 7.2 CNY/USD. Besides, the book also shows results of policy simulations of eight scenarios namely Optimistic, Conservatively Optimistic, Pessimistic (3 kinds), and Conservatively Pessimistic (3 kinds), with forecasted data of the growth being corrected according to indexes of the real economic operation such as total electricity consumption, railway freight volume, and medium- and long-term loan structure. The results of the forecast reveals that China’s macroeconomy still faces rather large downward pressures entering year 2017, and the foundation for stable growth is not that solid.

The book includes five chapters, namely the short-term characteristics and main risks of China's macroeconomic development, forecast of main economic indexes of China 2017 under reference conditions, forecast of main economic indexes under different scenarios and policy responses, the key of reducing the gap between potential and real growth rates being reform, enhanced implementation of reform needed for deepening supply-side structural reform. From both long-term and short-term perspectives, the book expounds on the radical causes of the sustained downturn of economic growth rate and how to reverse the downward trend of economy and realize stable growth from four aspects as follows:
First, analyses based on no matter inherent logic, historical perspectives, or quantitative empirical data cannot get to the conclusion of sharp decrease of potential economic growth rate. Through simulations of a two-sector general equilibrium model, the research team found out that even though the potential economic growth rate of China has already entered a downward channel, the gap between real growth rate and potential growth rate still exceeded two percentage points in recent years because of procrastination of the reforms. Whether the abnormally big gap can be reduced to a large degree depends on the efficiency of institutional reform.

Second, among the multiple reasons for the recent sluggish economic growth of China, one direct reason is the poor implementation of the reforms in local government and departments.

Third, in China's stable economic development, the role of economic policies, including industrial policies, cannot be underestimated, but it should also be recognized that policies may only work as temporary medical relief and can even cause sequelae, if they are not linked with the deep structural reform.
Fourth, for China’s economy to realize stable growth, the key is structural reforms of institution and governance and enhanced implementation of the reforms so as to efficiently release reform dividend.

The "China Macroeconomic Analysis and Forecast" research group of the IAR was founded in 2009, which aims to build an open and strong research force of both domestic and overseas researchers and conduct long-term research on China's macroeconomy. The regularly released Report of China Macroeconomic Analysis and Forecast focuses on major and hot issues in China's macroeconomy and bases itself on solid data and rigorous analysis. Besides economic forecast under different scenarios, it will also provide short-term policy responses and suggestions of long-term governance for government, enterprises, and society in the hope of promoting the long-term stable economic growth and sustainable development of China and the modernization of state governance capacity and governance system.

After eight years of continuous improvement and development, the research group has grown into a team that includes two senior international experts who are current or former senior economists of the Federal Reserve and a dozen of senior researchers who graduated from top economic schools both at home and abroad and preliminarily established the IAR-CMM model. With the application of leading research methods of counterfactual analysis and policy simulations on the basis of comprehensive data collection and scientific correction, their research presents rigorous analysis of the latest macroeconomic situation of China and objective forecast of its future development.

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