HONG KONG, CHINA (26 September 2017) — Stronger than expected external demand in the first half of the year, coupled with proactive fiscal policy and strong domestic consumption pushes the People’s Republic of China’s (PRC) growth projection higher than was previously forecasted for 2017 and 2018, according to a new Asian Development Bank (ADB) report.

In an update of the Asian Development Outlook (ADO) 2017, its flagship annual economic publication, ADB is now adjusting the PRC’s growth forecast to 6.7% in 2017 and 6.4% in 2018 from the April estimates of 6.5% and 6.2%, respectively.

“The PRC economy remains resilient, solidifying its role as an engine of global growth,” said Yasuyuki Sawada, ADB Chief Economist. “Supply-side reform is moving forward, but eventual success hinges on a careful balancing of the role of the market and the state, particularly as the country continues its transition to a more market and services-driven economy.”

Growth in the first half of 2017 reached 6.9%, 0.2 percentage points higher compared to the same period last year, buoyed mainly by strong domestic consumption, recovering exports, and a stable services sector, despite slowdowns in real estate and financial services. Growth in domestic demand for the first half of 2017 was in line with ADO projections and reflected wage growth and increases in pensions, which pushed up household disposable income by 7.3%, and higher government spending on health and education.

For the rest of 2017, the Update forecasts that consumption will remain the main growth driver of the economy as incomes rise and consumer confidence strengthens. Net exports contributed to the PRC’s growth so far, but will not in 2018 when imports are again expected to exceed exports. Investment, meanwhile, will continue its downward trend this year and the next due to structural and cyclical factors, including an uncertain business outlook for export-oriented industries and remaining industrial excess capacity.

The ADO 2017 Update further notes that ongoing monetary and financial policies will likely remain unchanged, as efforts to strengthen regulations to reduce financial risk while providing adequate lending to the economy continue. The government’s commitment to exchange rate liberalization may result in a further widening of the trading band for the renminbi, particularly if recent stability in foreign exchange markets and a favorable balance of payments are sustained.

Nevertheless, risks remain. The report notes that further regulatory tightening, needed to rein in rising debt, may cause liquidity shortages and put pressure on weaker financial institutions. Other downside risks are the specter of global trade protectionism and renewed large capital outflows triggered by large US interest rate increases and resulting US dollar strength.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB is celebrating 50 years of development partnership in the region. It is owned by 67 members—48 from the region. In 2016, ADB assistance totaled $31.7 billion, including $14 billion in cofinancing.