OECD: Economy on strong growth path

The Chinese economy "remains strong" as consumption and the services sector continues to drive growth, said a report released by the Organization for Economic Cooperation and Development on Tuesday.

Year-on-year GDP growth rate for the world's second-largest economy is expected to reach 6.2 percent in 2019 and 6 percent in 2020, versus 6.6 percent in 2018, it said.

Despite the slowdown, the growth "remains strong by international standards" and China will continue to be the biggest contributor to global economic growth, said Ludger Schuknecht, deputy secretary-general of the OECD.

"I think China is definitely on track" to achieve its goal to become a moderately prosperous society in all respects by 2020, Schuknecht said.

China's growth story is expected to sustain as the economy continues rebalancing toward greater domestic consumption and services, the OECD report said.

Consumption has been supported by low unemployment and steadily rising incomes, while the shift from the business tax system to the value-added tax in 2016 is supporting the outsourcing of services and the development of the sector, it said.

In 2018, consumption contributed 76.2 percent of the country's GDP growth, while the services sector contributed nearly 60 percent, official data showed.

For China to sustain long-term growth, the OECD noted the importance to properly address the challenges faced by the economy, especially the risks associated with high debt levels.

China's total debt level declined in 2018, but its debt-to-GDP ratio－which stood at slightly above 250 percent as of the third quarter of 2018－is still "on the high side" among major economies, Schuknecht said.

The country should strike a balance between the need to keep the economy buoyant and the need to contain debt risks, he said. Therefore, he suggested China factor in the repayment abilities of local governments when determining debt quotas, and avoid fiscal stimulus from direct lending to State-owned enterprises and local governments.

China has raised this year's special local government debt quota by nearly 60 percent to 2.15 trillion yuan ($320.5 billion) to support major construction projects already underway and to address weak links, according to the Ministry of Finance.

"It is important for infrastructure investment to focus on less developed fields that can efficiently boost long-term growth, rather than reckless large-scale investment," said Yang Weiyong, an associate professor at the University of International Business and Economics in Beijing.

China still needs investment in a number of areas, such as environmental facilities, suburban railways and underground structures, given its low level of percapita capital stock compared to advanced countries, the report said.

Zhang Wenlang, chief macroeconomic analyst at Shanghai-based Everbright Securities, said macroeconomic policies are on the right track and the sustainability of the Chinese economy has been improving. "We do not expect a big stimulus going forward."

To spur sustainable growth driven by improved productivity, the OECD also recommended China to create "a single product and labor market", or to reduce local protectionism and restrictions on the hukou.