The economic indexes of 2018 are at our fingertips. They show a surprisingly robust economic performance, defying the previous prevailing pessimistic views on the Chinese economy.

Chinese government has come to grips with the painful economic restructuring, despite an external environment that has become increasingly volatile and hostile. As a result, to make accurate economic forecasts, one must be well-informed in analysis and well-measured in diction. Pathetically, a profusion of economic reviews remains alarmed by the declining agricultural and industrial production.

In fact, China has shifted to a fast track of medium- and high-end manufacturing and the R&D of industrial technologies. Such changes prompt us to adopt a more holistic matrix to assess the growth rate, the size, as well as the quality and the mix of the domestic economy.

The growth rate for 2018 was 6.6 percent, slightly higher than the projected 6.5 percent; the total economic size, 90 trillion yuan. The two figures show that the economic reforms and restructuring have worked as expected.

Looking at other indexes, we can tell that in general, most targets have been met, such as slower growth speed, better quality, stable size and technological breakthroughs. For instance, the output growth reached 6.2 percent; one of its subcategories, the year-on-year output of emerging industries, is an eye-striking bright spot: Trains and passenger cars increased by 183 percent, microwave terminals by 104.5 percent, new-energy cars by 40.1 percent, and bio-based chemical fiber by 23.5 percent; and even the lackluster integrated circuit industry grew by 9.7 percent, still higher than the average industrial growth.

Those statistics are a silver lining against a global recession and an escalating trade friction between the United States and China. Since April 2018, the Sino-US trade tensions have put a severe strain on the Chinese economic restructuring.

Against all odds, the economic indexes of 2018 have exceeded expectation, a very encouraging sign that demonstrates the resilience of the Chinese economy against external pressure.

The touchstone of China’s economic development has changed, because the country is shifting from speed-focused growth to quality-oriented growth, from industrial production to a service economy. The reforms are tasked with restructuring, moderation and quality improvement; the size and the speed of economic growth have paled into significance.

So in this new era, the fiscal and currency policies should also stay attuned. When using tools such as benchmark interest rates, monetary policies and other macroeconomic supervision to regulate the economy, quality and efficiency should override size and scale.

Among the tools, currency comes to the fore. First, the projection, regulation and control of the renminbi should be guided by clear vision and targets, which is to boom the real economy and industrial development of China. Capitalizing renminbi does not mean giving the currency free rein, or giving up any intervention or supervision. The exchange rate should never be decoupled from the Chinese economy or the actual needs of export-oriented Chinese enterprises.

At present, the exchange rate of renminbi against the US dollar is under huge appreciation pressure. If the dollar/yuan exchange rate gets to or beyond 7, a widespread market panic will ensue. It looks as if the yuan should be prevented from weakening too much, and 7 a key red line. But actually it is not necessarily a bad thing especially for foreign trade enterprises.

Exchange rate is closely related to basic economic goals and economic perception, so it is key to attune the pace and the floating band. Despite the ups and downs of the US Dollar Index, the depreciation of the dollar always plays a part in the American macroeconomic regulation and control. However, for the renminbi, to appreciate or to depreciate, largely remains unclear. Therefore, China should be prepared, in case of any violent exchange rate fluctuations, as regulating and controlling the exchange rate has already become an instrumental weapon in international trade.

Foreign entities usually have a flair of using the projections of exchange rates to get what they want. For instance, Goldman Sachs recently revised its previous forecast that the Chinese yuan would weaken to 7 against the US dollar. Whether it bet against or on renminbi, it is driven by profit margin.

Though it is only February, doom-mongers have already sowed the seed of panic, predicting a downward spiral of the Chinese economy in 2019. We have seen too many wild cards since the end of 2018 and will see more to come, so we have to proceed with extreme caution, especially for short-term forecasts. For example, we are still unclear about the cards in the sleeves of the US government. Would the Federal Reserve increase interest rates? How about the US Dollar and the US economy? Whenever discussing economic prospects and predicting the future of our economy, one cannot be too prudent or too informed.

China needs to look beyond the economic indexes, which are more than that meets the eye. Frivolous discussions and anxiety about the numbers will get us nowhere; rational reflection on our domestic policies, international trade and China-US trade will help us grasp internationalization better and boost our reform and development.

Tan Yaling is president of China Forex Investment Research Institute.

This article was translated by Hou Sheng.

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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