How the economy will look next year

, China's real GDP growth slowed slightly from 7.4% in 2014 to 7.1% in 2015. On the one hand, China's export growth will accelerate due to factors such as the recovery of foreign economies; on the other hand, real estate development investment will continue to decelerate due to weak sales of commercial properties in the previous period. Although the acceleration of exports is conducive to economic growth, but the downward pressure generated by the deceleration of real estate investment will be difficult to fully hedge for the acceleration of exports.

While economic growth may continue to slow in 2015, urban employment is expected to remain basically stable. This is due to the fact that China's economy is gradually transforming from a manufacturing-led model to a service sector that is more labor-intensive than the manufacturing sector, and an increase in the share of the service sector in the economy means that each percentage point of GDP growth will create more jobs than before. Given the current industrial structure and the labor-intensity and employment elasticity of each industry, we estimate that the new urban jobs created by a 7.1% GDP growth in 2015 will be roughly comparable to the 2014 level.

We expect that the effects of various reform measures to promote structural adjustment will gradually emerge, and the economic structure will continue to improve in 2015. The contribution of final consumption to economic growth will continue to rise, while the contribution of capital formation to economic growth will decline; the share of the tertiary industry in GDP will continue to rise; expenditure on people's livelihoods, including shantytown renovation, inputs and outputs of green industries such as environmental protection and new energy, and inputs and outputs of scientific and technological innovations will maintain rapid growth, and the sustainability of economic development will be enhanced.

Our baseline forecast for the trend of consumer prices is that the CPI will rise by 2.2% in 2015, with little change from 2014. There are a variety of factors affecting CPI increases, including food prices, domestic and international output gaps, and changes in international commodity prices. Of these, food prices and international commodity prices face greater uncertainty.

On the balance of payments side, our baseline forecast is that in 2015, exports will grow by 6.9%, an acceleration of 0.8 percentage points from 2014; imports will grow by 5.1%, an acceleration of 3.2 percentage points from 2014; and the current account surplus to GDP will be 2.4%, essentially unchanged from 2014.

Our baseline forecast for economic growth faces several upside and downside risks. The main upside risks include higher-than-expected growth rates abroad, a more-than-expected loosening of China's real estate policy to boost homebuyers' confidence, and faster structural reform measures to boost China's economic growth potential. The main downside risks include: (1) deterioration of economic conditions in Europe due to geopolitical factors; (2) larger-than-expected rate and intensity of interest rate hikes in the U.S., leading to large-scale capital outflows, large exchange rate fluctuations, and economic slowdowns in emerging market economies, which will reduce the demand for China's imports from these economies; and (3) a substantial decline in prices in China's real estate market, leading to an over-expected real estate sales and investment deceleration.

I. Economic Growth and Employment Forecast

Our baseline judgment is that, under the background of the "three-phase overlap", next year's economy will reflect more characteristics of the "new normal", with a slight slowdown in the growth rate, but the employment situation will remain basically stable, and the economic structure will continue to improve. The growth rate will slow down slightly, but the employment situation will remain basically stable, the economic structure will continue to improve, and the sustainability of economic growth will be enhanced.

(1) Real GDP growth is expected to fall to 7.1% in 2015

Our forecast under the baseline scenario is that real GDP will grow by 7.1% in 2015, a decrease of 0.3 percentage points compared with 2014; fixed asset investment will grow by 12.8% in 2015, a deceleration of 2.7 percentage points compared with 2014; and total retail sales growth will remain at 12.3% in 2015, a decrease of 2.7 percentage points compared with 2014. The growth rate of total retail sales remained at 12.2%, with little change from 2014; the growth rate of exports increased from 6.1% in 2014 to 6.9% in 2015, and the growth rate of imports increased from 1.9% in 2014 to 5.1% in 2015.

The background of the 2015 GDP growth rate may continue to slow down is that China is facing the "growth rate shift period, structural adjustment pain period and the digestion period of the previous stimulus policy" of the three-phase superposition effect. From the supply side, the reform can improve the efficiency of resource allocation and economic growth potential, but the decline in the working-age population and the rapid rise in labor costs, environmental resources to economic growth constraints increase, the manufacturing industry, "catching up effect" weakened productivity growth rate slowdown, and other structural factors will continue to economic growth potential to generate The downward pressure will continue to be exerted on the potential of economic growth.

From the demand side, the two main reasons affecting economic growth in 2015 are: (1) the international economic recovery and other factors have slightly accelerated the growth of China's exports; (2) the weak sales of commercial real estate since 2014 has led to a continued deceleration of investment in real estate development in 2015, and the deceleration of real estate investment and its negative spillover effects on related industries will inhibit economic growth. Although the acceleration of exports is conducive to economic growth, the downward pressure on the economy caused by the deceleration of real estate investment is difficult to be fully hedged by the acceleration of exports.

There are many other short- and medium-term factors affecting economic growth in 2015. Some of the positive factors include the increased enthusiasm of private and foreign-funded enterprises to invest in the service sector due to reform measures such as decentralization and opening up to the outside world, the boost to the economy from investment in infrastructure and shantytown renovation, and the impetus to small- and medium-sized enterprises (SMEs) from the government's policies to support innovation and entrepreneurship

. Negative factors include cyclical pressures such as the deceleration of investment in some manufacturing industries due to excessive leverage, rising non-performing assets ratio and pressured manufacturing margins.

The key assumptions of our benchmark forecast for 2015 include (1) GDP growth in developed economies accelerates from 1.8% in 2014 to 2.3% in 2015; (2) international commodity prices decline slightly and global trade conditions are basically stable; and (3) China's monetary and fiscal policies maintain continuity and stability. The monetary conditions index (the weighted average index of the difference between the real interest rate, the real effective exchange rate and the growth rate of broad money and the level of the base period) remained basically stable; the fiscal balance as a share of GDP was basically unchanged in 2015 compared with 2014, and the fiscal pulse (the value of the change in the cyclically-adjusted fiscal balance as a share of GDP compared with that of the previous year) in 2015 compared with 2014 also remained basically stable; (4) the deceleration of real estate development investment in 2015 was mainly caused by the deceleration of commercial property sales since 2014, and no other major external shocks were taken into account.

Our baseline forecast for economic growth in 2015 faces several upside and downside risks. The main upside risks include higher-than-expected economic growth abroad (e.g., the geopolitical conflict in Ukraine, if mitigated, could boost market confidence, investment and economic growth rates in Europe); and higher homebuyer confidence due to policy loosening in China's real estate market (e.g., lifting of purchase restrictions in major cities, lower down-payment ratios on mortgages, lower mortgage rates, etc.). The main downside risks include: (1) deteriorating economic conditions in Europe due to geopolitical factors and the impact of escalating terrorist activities on the global economy; (2) greater than expected speed and intensity of interest rate hikes in the United States, leading to large capital outflows, significant exchange rate fluctuations and economic slowdowns in emerging market economies, thereby reducing the demand for China's imports from these economies; (3) a significant decline in China's real estate prices , leading to real estate sales, investment in excess of expected deceleration; (4) a substantial appreciation of the real effective exchange rate of the renminbi, inhibiting the growth of China's exports. An analysis of various scenarios regarding foreign economic growth, the impact of the U.S. interest rate hike, and the domestic real estate market can be found in Section IV of this report.

(ii) Urban employment is expected to remain stable

We expect that under the baseline scenario, although economic growth slows down in 2015, urban employment will remain basically stable. As China's economy is gradually transforming from a manufacturing-led to a service sector, which is more labor-intensive than the manufacturing sector, an increase in the share of the service sector in the economy means that each percentage point of GDP growth will create more jobs than before, and the economy's ability to absorb jobs will increase.From 2008 to 2013, China's GDP growth rate declined from 9.6% to 7.7%, a decrease of 1.9 However, benefiting from the transformation of industrial structure, the proportion of China's tertiary industry in GDP rose from 41.8% to 46.1%, an increase of 4.3 percentage points, making the number of new jobs in cities and towns in China basically stable every year. This judgment is also supported by the fact that the current job-seeking multiplier is significantly higher than 1 (indicating that despite the deceleration of economic growth, the labor market is still experiencing an oversupply of jobs).

Given the current economic structure as well as the labor-intensity and employment elasticity of each industry, we expect that, assuming that the tertiary industry's share of GDP can be increased by 1 percentage point in 2015 (the annual increase in the past few years has been above 1 percentage point), the number of new urban jobs that can be created by a 7.1% GDP growth rate will be basically comparable to the level projected for 2014. In addition, data released by the Bureau of Statistics showed that China's working-age population (defined as those aged 15-59) decreased by 2.44 million in 2013 compared with 2012, a decline of about 0.3%. Estimates based on the demographic structure and total fertility rate suggest that the future decline in China's working age population is long term and continuous. Against this backdrop, assuming no drastic changes in the rate of urbanization

and the labor participation rate, the 7.1% GDP growth implies that the urban unemployment rate will not deteriorate significantly in 2015, and may even continue to improve.

(C) Economic structure will continue to improve

While we expect all economic growth rates to slow down in 2015, the economic structure is expected to improve in several aspects and the sustainability of economic growth will be strengthened as the role of the market mechanism in resource allocation is enhanced, the gradual implementation of various structural adjustment measures, and the changes in consumer preferences.

Analyzing the contribution to economic growth from the perspective of the expenditure approach, we estimate that under the baseline scenario, the contribution of the three major sources of demand to real GDP growth in 2015 will be as follows: final consumption will contribute 50.9%, about 0.9 percentage points higher than the 2014 estimate; gross capital formation will contribute 46.8%, about 0.9 percentage points lower than the 2014 estimate; and net exports of goods and services will contribute 2.3%, about 0.9 percentage points lower than the 2014 estimate. Net exports of goods and services contributed 2.3%, basically unchanged from the 2014 estimate. This indicates that economic growth will rely less on investment, the role of consumption in driving economic growth will increase, and the demand structure is expected to continue to improve.

In fixed-asset investment, although investment in commercial housing and residential development and some high-energy-consuming, high-pollution and low-end manufacturing industries are expected to continue to decelerate, the government's strong support for shantytown renovation, environmental protection, energy conservation, new energy, infrastructure and other areas, and the reform of the investment and financing mechanism will increase the proportion of investment in people's livelihoods and the green industry, which will help to optimize the investment structure. The government's push to reduce restrictions on access to private capital, increase opening up to the outside world, and reform measures such as the Camp Reform Increase will continue to help increase the share of the tertiary sector in the economy. The new round of policies to support and encourage innovation and entrepreneurship is expected to further increase the growth rate of China's scientific and technological inputs and outputs, enhance the technological content of China's economy and the growth potential of total factor productivity, and strengthen the sustainability of economic growth.

II. Price Trend Forecast

Our forecast under the baseline scenario is for the consumer price index (CPI) to rise by 2.2% in 2015, little changed from the 2.0% (forecast) in 2014.

The main factors affecting the trend of the CPI in 2015 include food prices, the output gap and the trend of international commodity prices: first, food price increases. China's annual food price increase in the long-term average of 4.5% (2000-2014 average), but in the first 11 months of 2014, the year-on-year growth rate of food prices was only 3.1%. From the perspective of the need to raise farmers' income and the long-term response of the supply side to prices, there is a possibility that the price increase of agricultural products (11.73, 0.18, 1.56%) will return to the long-term trend (i.e., widen), but taking into account the current climate, the food harvest and the trend of international food and oil prices, our baseline expectation is that the rate of increase in China's food prices next year will remain basically stable.

Second, the output gap. Factors affecting the output gap are complex, including changes in growth potential due to structural factors such as population, the digestion of excess capacity in some sectors, the increase in capacity utilization by export growth, and the suppression of demand by the deceleration of real estate investment. Based on the comprehensive judgment, it is expected that the domestic output gap will not significantly deteriorate or improve in 2015, so the impact of the output gap on the PPI tends to be neutral, and the change in the PPI and its transmission to the CPI due to the change in the output gap will be relatively limited.

Third, international commodity prices. According to the latest forecast of the IMF [microblogging] and other organizations, the international commodity price index will continue to maintain a downward trend, but the rate of decline is narrower than in 2014. According to this trend, especially the changes in energy prices, it is expected that in 2015 China's import price index will still face some downward pressure, but the rate of decline will gradually become smaller.

The above benchmark forecast for the price index faces a number of upside and downside risks. Upside risks include international economic growth exceeding expectations, making the global negative output gap narrow faster; intensified geopolitical conflicts leading to a sudden rise in international commodity prices; greater-than-expected quantitative easing in Europe and Japan, intensifying arbitrage investment in commodities; and China's economy benefiting from a faster recovery in the real estate market. Downside risks to China's inflation include lower-than-expected international and China's economic growth, excessive U.S. interest rate hikes, a sharp decline in international commodity prices, and appreciation of the effective exchange rate of the RMB.

III. Import and Export Forecast

Our baseline forecast is: in 2015, trade exports (nominal value in US dollars) by customs caliber will grow by 6.9%, accelerating by 0.8 percentage points compared with 2014; imports will grow by 5.1%, accelerating by 3.2 percentage points compared with 2014.2 The ratio of current account surplus to GDP will be 2.4%, basically unchanged compared with 2014. The current account surplus to GDP ratio was 2.4%, essentially unchanged from 2014.

Positive factors affecting the outlook for China's exports in 2015 mainly include: first, the markets of developed economies account for about 50% of our foreign demand, and the gradual rebound of the economies of these regions will improve the external environment for China's exports. Coherent forecasts estimate that next year's economic growth in Europe, the United States and Japan accelerated by about 0.5 percentage points, which is conducive to boosting China's export growth. Secondly, the government's initiatives to stabilize foreign trade, as well as the Shanghai Free Trade Zone and the expansion of the mainland's Yanbian region's opening-up strategy will also be conducive to boosting export growth. However, the labor cost advantage of emerging market economies will continue to emerge, and the developed economies turn to low-cost countries to import, will inhibit the potential for China's export growth. From the import side, although China's investment growth rate and international commodity prices may continue to decline next year, but the rate of decline is estimated to be more moderate than this year, which will help to improve China's nominal import growth rate, so that it returns to the normal trend.

Our key assumptions for our benchmark forecast of imports and exports in 2015 include (1) economic growth in developed countries will rise from 1.8% in 2014 to 2.3% in 2015; (2) China's macro policy maintains continuity and stability; and (3) the real effective exchange rate of the renminbi is basically stable.

Our baseline forecast for imports and exports faces several risks. If the foreign economy grows significantly faster than expected, it will be conducive to improving China's export situation. The main downside risks to China's exports include a faster and stronger-than-expected U.S. interest rate hike, a marked deterioration in the international economic situation due to geopolitical and other factors, and a marked appreciation of China's real effective exchange rate due to fluctuations in the international exchange rate. Risks to import forecasts include: geopolitical factors driving up commodity prices; an over-expected adjustment in China's real estate market, further dampening demand for foreign commodity imports, and so on.

Four, uncertainties and scenario analysis

(A) foreign economic growth scenarios and the impact on China's exports

According to the latest forecast of the International Monetary Fund [microblogging] (IMF), the U.S. economic growth rate will rise from 2.2% in 2014 to 3.1% in 2015, and eurozone economic growth rate from 0.8% in 2014 to 1.3% in 2015. The US economic growth rate will rise from 2.2% in 2014 to 3.1% in 2015, the Eurozone economic growth rate will rise from 0.8% in 2014 to 1.3% in 2015, and the Japanese economic growth rate will fall from 0.9% in 2014 to 0.8% in 2015. Overall, economic growth in developed countries is expected to return to its growth potential and may even exceed potential in the United States. In the United States, healthier residential balance sheets and good job growth momentum will boost consumption; higher capacity utilization and aging capital stock will drive accelerated capital investment. The pace of recovery in the euro area faces greater uncertainty due to the impact of the conflict in Ukraine, and sluggish structural reforms continue to dampen its growth potential, but the depreciation of the euro exchange rate will contribute to a slow pickup in growth in 2015. Japan's delay in the second round of consumption tax hikes and aggressive quantitative easing measures are likely to lead to a slightly better-than-expected economic performance next year. Growth in emerging market economies will be slightly better overall, but still below potential output. Economies such as Russia and Brazil will struggle more due to geopolitical factors and lower commodity prices, but some export-oriented emerging economies will benefit from the recovery in advanced economies in 2015.

We use the IMF's forecasts as a baseline scenario for foreign growth. However, there are a number of risks to this baseline scenario. The first is geopolitical uncertainty. For example, whether the geopolitical problems in Ukraine and Russia can be alleviated relatively quickly will largely affect the confidence of European businesses and investors, and thus their prospects for investment and economic growth. A referendum in Scotland could inspire separatist activity in other European regions, including Spain. The second uncertainty is the pace of interest rate hikes by the Federal Reserve and the impact on other countries. Current market expectations are that the United States will begin raising interest rates in mid-2015 and by nearly 200 basis points over the following two years, but if the pace of its rate hikes is significantly earlier or faster than expected, this could lead to significant capital outflows and a deceleration of growth in some emerging market economies. Other risks include significant volatility in commodity prices, terrorist attacks, widespread contagion from epidemics such as Ebola, and large exchange rate fluctuations.

Given these uncertainties, we analyzed the outlook for China's import and export growth under three scenarios of international economic growth in 2015. The three scenarios are as follows: (1) high scenario, which assumes that the U.S. economic growth rate will be 4.1%, Europe 2%, and Japan 1.3%; (2) baseline scenario, which assumes that the U.S. economic growth rate will be 3.1%, Europe 1.3%, and Japan 0.8% in 2015; and (3) low scenario, which assumes that the U.S. economic growth rate will be 2.1%, and the economic growth rates of Europe and Japan will be 0.6% and 0.3%, respectively, in 2015. 0.3%. Under the high, baseline and low scenarios, China's export growth in 2015 is forecast to be 8.9%, 6.9% and 5.0% respectively.

(ii) the impact of the U.S. interest rate hike on emerging market economies

If the Fed's speed and intensity of monetary policy tightening significantly exceeds expectations, it may cause emerging market economies to experience large capital outflows and significant exchange rate volatility, and lead to the deceleration of economic growth in these economies, thereby impacting China's export demand.

Since 2013, with the strong recovery of the U.S. economy, the market for quantitative easing policy exit and interest rate hike is expected to continue to heat up. In September this year, the Federal Reserve Open Market Committee (FOMC) members on average expect the federal funds rate to touch 1.375% by the end of 2015 and 2.875% by the end of 2016, compared with the average expectation of 1.125% and 2.4% respectively in March. Regarding the timing of the Fed's rate hike, the current average expectation of FOMC members is the first rate hike in June next year. Market expectations and the Fed has some differences. Recently, with the end of the U.S. quantitative easing policy, as well as the U.S. economic situation continues to improve, the market interest rate hike is expected to increase: according to the Chicago Mercantile Exchange (CME Group) published federal interest rate futures trading data, at the end of September, the market is expected to the Federal Reserve has a 73% probability of the Fed will begin to raise interest rates in September 2015, while the data of December 10 shows that the probability of this rose to 94 percent.

The pace and intensity of future U.S. rate hikes could have another impact on some emerging market economies. Emerging market economies that have seen more dollar inflows in previous years and asset prices pushed up have been under pressure from last year to face capital outflows, exchange rate depreciation, downward pressure on asset prices and economic slowdowns. Currencies such as the Indian rupee, the Brazilian real and the South African rand have depreciated since May 2013, with the rate of depreciation once reaching more than 20%. In response to currency depreciation and hot money outflows, emerging market economies such as India and Brazil have raised interest rates ahead of schedule, but large interest rate hikes will increase the downward pressure on the real economy. If the actual speed and strength of the United States interest rate hike is greater than expected, emerging market economies will once again be affected by the impact of capital flows and exchange rate fluctuations. For some small emerging market economies, even if the U.S. interest rate hike is fully expected, relative to the capacity of its capital market for the larger scale of capital outflows will still have a negative impact on its exchange rate and the real economy. From the internal point of view of some emerging market economies, after the international financial crisis, there are private and public **** sector leverage rate climb, bank credit scale faster expansion, macroeconomic imbalances intensified and other problems, these structural problems lead to risks in the background of capital outflows are prone to erupt in accordance with the trend.

Over the past year or so, Brazil, South Africa, Indonesia, India and Turkey have been hit hardest by the expected impact of the U.S. interest rate hike, with imports from these five countries accounting for about 7 percent of our total exports. We estimate that, assuming that capital outflows and economic slowdowns occur in these five countries as a result of the Fed's more-than-expected interest rate hikes, which will lead to a 10% reduction in the demand for these countries' exports to China, it will drag down China's economic growth next year by about 0.15 percentage points.

(C) Scenario analysis of China's real estate sector

Besides international factors, the main uncertainty affecting China's economic growth next year is domestic investment in real estate development. Data in recent years show that real estate development investment accounts for about 20% of all fixed asset investment, and the direct impact on the economy of a deceleration of 10 percentage points in real estate development investment is to drag down GDP growth by about 1 percentage point, and the cumulative effect of the impact on the economy could be up to 2 percentage points if we take into account the impact on the related industrial chain (such as cement, steel, chemical, machinery, household appliances, furniture, energy and other industries).

Since 2014, real estate prices and sales in many cities in China have begun to decline, and real estate development investment is slowing down. We believe that real estate sales are an important leading index of real estate investment, and the decline in sales will form downward pressure on future real estate investment through at least two channels. First, many sales of commercial properties are pre-sales by developers, with completion occurring quite a long time after the sale, so the volume of sales largely determines the volume of future investment. Second, a sales downturn can cause developers to become pessimistic in their expectations of future sales revenues and selling prices, leading them to cut back on land purchases and the development of new projects.

We examine the impact of the real estate sales decline since 2014 on future real estate development investment through a distributional lag model. The results of the model's scenario analysis are: based on the real estate sales in the past few quarters and assuming that the growth rate of commercial residential sales area in the future declines by 0, 5 and 10 percentage points relative to 2Q2014, the growth rate of real estate development investment in 2015 under the three scenarios mentioned above will decline by 2.5, 3.6 and 4.6 percentage points compared with that of 2014, respectively. Other premise assumptions of the above analysis include that the foreign economy maintains stable growth and the orientation and strength of China's monetary and fiscal policies remain unchanged.

In addition, we also used the 2010 input-output table to estimate the impact of the downturn in the real estate industry (including construction) on other related industries. Based on the full consumption coefficients and input-output data, we calculated the impact factors of each downstream industry on the upstream industry, and based on the impact factors, we estimated the impact of a 10% drop in real output of the real estate (including the construction industry) on the real output of each industry (see Figure 3). As can be seen from the figure, the industries that have been significantly impacted by the decline in real estate (including construction) output include cement, mining, iron and steel, and chemicals.

Appendix: notes on the forecasting model

The baseline forecasts for the major variables (e.g., GDP, CPI, final consumption, capital formation, exports, and imports) for 2015 in this report are based on the macro-econometric forecasting model developed by the Research Bureau of the People's Bank of China [PBOC]. In the study, the trend judgments on major variables such as GDP and CPI were also compared and contrasted with the results of the three VAR macro forecasting models. Distributional lag models and input-output analysis methods were used in the scenario and impact analysis of the real estate sector. These models and methods are briefly described below.

I. Macroeconometric ModelsThe total*** model consists of 89 behavioral equations and constant equations, with more than 20 core equations describing the major economic behaviors. The theoretical basis of the model is the assumption of neoclassical macroeconomics: in the short run, output and employment are determined by aggregate demand because prices and wages are sticky. Over time, the output gap affects prices and wages, and in the long run the goods and labor markets converge to equilibrium. In the long run, output is determined by supply, prices are fully adjusted, and the long-run Phillips curve is vertical. The model is divided into the following modules: (1) Aggregate demand module. This module is subdivided into several parts such as residential consumption, government consumption, business investment, government investment, exports and imports. (2) Aggregate supply module. This module determines potential output through the production function. (3) Price module. Based on the Phillips curve, inflation is determined by the output gap, labor costs and non-labor costs. (4) Real Estate Module. This module includes two main components, real estate investment and real estate prices.

(5) Labor and Wages Module. This module includes variables such as rural and urban wages and employment.

(6) Monetary and Financial Module. This module selects one interest rate as the exogenous variable, but can switch the exogenous variable to M2 growth rate. (7) Fiscal module. This module includes two parts, fiscal revenue and fiscal expenditure, while revenue is subdivided into tax and other revenues, and the government's investment expenditure is an exogenous variable.

II. VAR Macroforecasting ModelsWe refer to the results of three vector autoregressive (VAR) macroforecasting models when analyzing key variables such as GDP growth. The first is a traditional VAR quarterly model with 17 macroeconomic variables.

The second VAR model is the result of a collaborative study between the Shanghai Institutes for Development Excellence (SIDE) and the Research Bureau of the People's Bank of China (PBoC), and we call it the Logit-VAR monthly forecasting model. The model involves 14 core indicators and 14 key indicators. Forecasting*** is a three-step process: in the first step, the core indicators are converted into state variables to strengthen the ability to judge economic cycles; in the second step, a VAR model consisting of a dependent variable (state) and an independent variable (state) with different lags is used to estimate the parameters using the least-squares method, and then predict the most probable path of the state variable in the future; in the third step, the state variable and its level are used as the independent variable and the independent variable to construct another VAR model with the state variable and the level as the dependent variable. dependent variable to construct another VAR model that is used to predict the growth rate of the level value. The third model is the result of a collaborative research between the Research Bureau of the People's Bank of China and the Shanghai Advanced Institute of Finance. The model takes into account both trend growth and regimeswitching of impulse fluctuations, capturing the two main trend ranges of the Chinese economy.

The scenarios and impact analyses of real estate in the report are based on a distributional lag model and an input-output model. Distributed lag model to real estate development investment growth rate as the explanatory variables, the lag and the current period of commercial residential sales area growth rate, real estate investment growth rate, foreign economic growth rate, money supply growth rate, interest rates, fiscal balance of payments as a percentage of GDP as the explanatory variables for modeling. Regarding the impact of the decline in output in the real estate sector on other sectors, our analysis is based on the full consumption coefficient of the input-output table, which means that for every unit of final product supplied by a sector, the number of products or services from each sector needs to be consumed directly and indirectly.