(Yicai Global) Dec. 2 -- China's gross domestic product is likely to expand 5.5 percent next year from this year as increased investment in infrastructure and manufacturing offsets the impact from the cooling real estate sector, the chief economist of US investment bank Morgan Stanley’s China division said recently.

However next year’s growth prospects depend on active policy adjustments to prevent spillover effects from the real estate sector, said Robin Xing. Should there be a fallout from the slowdown in the property sector, GDP growth might fall to 4.5 percent.

Consumption is likely to pick up next year but it won’t be a big rebound amid the nation’s ‘zero tolerance’ pandemic control measures. Exports will remain strong as the US has a very robust momentum to replenish inventory. And a healthy current account balance will help keep the Chinese yuan stable, Xing said.

China’s macro leverage ratio fell 10 percentage points this year and the actual growth in real estate and infrastructure investments is already below zero. The country’s macro debt ratio growth is one of the mildest in the world. That of the US, the UK, Japan and India have all jumped between 25 and 30 percentage points since the start of the Covid-19 pandemic.

This means China’s policy environment has the foundation to return to normal and for the focus to return to high-quality growth while other countries are likely to tighten their policies over concerns of high inflation pressure.

Chinese authorities have implemented rare and large-scale deleveraging policies and restructured the regulatory framework for real estate, the platform economy and carbon emissions industries.

China’s approach will shift from ‘deleveraging’ this year to ‘stablizing leverage’ next year, Xing said. Fiscal and monetary policies will generally be looser and more proactive. Fiscal policy will focus on cutting taxes for companies as well as stimulating consumption and investment in green infrastructure. The country will issue, for example, a package of policies to support tax and fee cuts, boosting consumption and green infrastructure investment, he added.

Regulatory reform may enter a more gradual phase after the progress over the past year, with the introduction of more transparent mechanisms. With timely adjustments, economic growth could gain ground in the fourth quarter and recover modestly next year.

Editor: Kim Taylor