CGTN Europe speaks to Gerard Lyons, an economist and Senior Independent Director of Bank of China (UK), about the Government Work Report delivered during China's Two Sessions.
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00:00Let's talk now to Gerard Lyons, the Distinguished Economist and Senior Independent Director at Bank of China.
00:07Gerard, welcome back, good to see you.
00:10Boosting China's domestic consumption depends on consumer confidence, doesn't it?
00:15I mean, do you think this 5% or around about 5% growth ambition is wishful thinking?
00:23Well, I think the forecasts are on the optimistic side.
00:27They are plausible, but to be delivered, it necessitates quite proactive economic policy
00:34in terms of fiscal policy, government spending, in terms of monetary policy, which needs to be relaxed,
00:40and also requires quite targeted and timely supply side measures.
00:46So it's not just a growth forecast.
00:47I think it's important to stress that this time a year ago, financial markets globally
00:53were sceptical about the economic forecast per trade a year ago, but they've turned out to be delivered.
00:59This time, I think there's a greater degree of uncertainty,
01:02both because of recent developments in China as well as the external environment.
01:07But it's not just a growth forecast, it's the unemployment forecast and also the inflation forecast
01:12that are going to be challenging.
01:14The challenge is that China has faced deflationary pressures recently.
01:18So to get to 2% inflation, it really does necessitate easier economic policy
01:25that results in higher spending at home.
01:27So they're plausible, but optimistic.
01:29Let's talk about spending abroad and selling abroad.
01:34We're going to travel around the world in this program in the next 30 minutes or so and talk about tariffs.
01:39How detrimental are tariffs to China's prospects and what's your outlook?
01:46What is going to happen on this tariff war with regard to China?
01:51OK, well, we've had a sort of dry run, shall we say, during President Trump's first term.
01:57Then the tariffs were on smaller scale and less in scope.
02:03And then China reacted by looking towards self-sufficiency in terms of areas such as food, energy and technology.
02:11Now, this time, it depends on how hard the tariffs hit.
02:15The Chinese need to respond in a number of ways.
02:18In terms of the domestic economy, it's very much reinforcing the message I've just said about stimulative measures at home.
02:25In terms of the export side, it's whether China can take some of the hit of the tariffs,
02:30either through currency change or squeezing the profit margins,
02:35or rerouting to other countries or via other countries such as Vietnam.
02:40Or on top of that, or in addition to that, trying to focus on new markets to sell into, such as Southeast Asia.
02:47Of course, China can sit down and negotiate with President Trump about other areas of the Chinese economy to open up in order to mitigate the pressure.
02:55So I think there are challenges there, but I think it's important to stress that this is the first stage in the process.
03:02There are policy levers that the Chinese can pull.
03:05What is your take on China's broader economic strategy?
03:10Well, I think it's important to stress that China is moving from a very high sustained rate of growth to a much more slower and more volatile pace of growth.
03:21That's a natural consequence of China going from middle income to high income.
03:25And it's a natural consequence of having a much older and ageing population.
03:30What I would actually stress is that China needs to actually very much follow through on the supply side measures it's talked about,
03:37in particular, moving up the value curve.
03:40And at the same time, for much of the last decade in China, the talk has been about boosting domestic consumption.
03:46Now, the outlook for any economy, including China, depends on the interaction between the economic fundamentals, policy and confidence.
03:54Confidence is key in order to maintain the confidence of those people with the ability to spend.
03:59But the policy levers need to be pulled to ensure that unemployment, particularly youth unemployment, is addressed
04:06and that China delivers on sustaining growth nearer to four to five percent as it hopes to.
04:11So I would be constructive about the outlook.
04:14But within saying that, it's important to stress that there's a high degree of margin of error this year,
04:19just given what's happening internationally as well as what's happening in the mainland itself.
04:24Gerard, good to see you. And thanks for coming on the program again.
04:26Gerard Lyons, economist and senior independent director at the Bank of China.