(Yicai Global) Jan. 2 -- Economists are adept at making predictions, but even they doubt the reliability of their projections. Media pundits have released their predictions for the new year, but they have also been served with a fair dollop of skepticism, as usual.

Yicai has published its economic forecast series almost every year since its inception 14 years ago. We believe that predictions should rest on economic and political models, but with the most decisive factor being empirical knowledge. Predicting economic trends is analogous to playing dice in that different economists harbor varying values and analytical and even risk preferences, but at the end of the day the forecasts must ground on some key variables.

We have clung to a profound belief throughout the past decade or so in our auguries -- that is, tracking the latest economic, financial and technology trends to make predictions along ethical boundaries that best fit the 'Pareto improvement' theory in a way that is optimally efficient and impartial, employing all available information is the optimal means.

Our predictions have not turned out to be entirely accurate. Last year, the Financial Times gave correct forecasts for 15 out of 19 issues. By contrast, our predictions nailed 17 out of 20 topics. The UK broadsheet misjudged three matters – the US stock market, Venezuelan defaults and Donald Trump. Yicai, on the other hand, guessed wrong about the rollout of the first deposit insurance scheme in China, the European refugee crisis and the Regional Comprehensive Economic Partnership (RCEP) negotiations. Our predictions for the US stock market and Trump administration were entirely correct, and we gave the right answers -- by sheer luck --regarding China's economic growth, the yuan exchange rate, fine particulate matter (PM 2.5) pollution, the US Federal Reserve's rate hikes, the US dollar and oil prices.

Emboldened by these gratifying results, we have now resolved to increase the number of topics from 20 to 46 this year to encompass China's macro economy, financial market and social welfare and development, as well as geopolitics, economic, financial and technological trends.

1. Will China's economic growth drop below 6.5 percent?

This is possible, but even if it does happen, the actual growth rate will still stay close to 6.5 percent.

China has entered a new era wherein the focus of economic growth has shifted away from development speed toward growth quality. However, gross domestic product will remain the most comprehensive and tangible indicator of economic development available today.

Last year, China's GDP growth defied dire initial expectations amid suspicions about the arrival of a new 'growth cycle.' Investment's contribution to economic growth has declined steadily, with consumption and foreign trade replacing investment as the main GDP growth engines for the year.

This year, fixed-asset investment may shrink further as a result of a prudent monetary policy and tightening real estate market regulation, but this is not necessarily bad news. In fact, effective financial risk prevention and improved financial resource allocation may unlock the country's future economic potential. The real uncertainties actually relate to the trade sector. Economic recovery is set to continue in developed nations, boosting international market demand. However, commercial frictions may pose a grave threat to Chinese manufacturers.

2. Will funding to local governments rise significantly?

The mismatch in financial and administrative powers between the central and local governments has induced a major bottleneck in the Chinese economy. Disappointment again awaits those who expect the situation to change this year. That said, relevant reforms will still issue, starting with the low-hanging fruits.

The report of the 19th National People's Congress stressed that the establishment of a modern fiscal system must accelerate as the top priority of budgetary and tax reforms, with one of the priority tasks being the creation of a unique central-local government revenue system in which shared taxes supplemented by exclusive taxes predominate to restore the equilibrium among the financial and administrative powers conferred on governments at different levels, cost allocations, tax system reform and the attributes of different taxes.

The existing tax allocation system is primarily based on shared taxes, and all three of the highest taxes -- value-added tax (VAT), corporate and personal income taxes -- are shared between the central and local governments.

The largest tax in the country, VAT, generates more than CNY5 trillion (USD765 billion) in government revenues every year, now equally divided between the central and local governments, but the central government will review, and possibly adjust, the distribution ratios in May. This decision will have far-reaching implications. The market is also curious as to whether a consumption tax, another major source of tax revenue (averaging over CNY1 trillion per year), will be allocated to local governments. The number of local taxes has also increased with the addition of an environmental protection tax this year.

3. Will China react to US company tax reform by slashing its imposts in a new race to the bottom?

Yes. This is the inevitable result of global competition. China will continue to lighten corporate tax burdens this year. Lowering costs for enterprises is a natural part of supply-side structural reform. Some would argue this is also one countermeasure China will adopt in reaction to US tax cuts.

China has always championed tax reductions throughout the world. The government lowered the financial burden on enterprises by more than CNY2 trillion from 2013 through 2016 and by another CNY1 trillion last year.

The US' extensive tax reform program will trigger a new wave of global tax cuts. Japan and the UK will follow suit, as will China.

China will hew to its original plan to lower taxes and administrative fees. This involves optimizing VAT policies and tax rates, lowering the nominal corporate income tax rate or relieving the tax burdens on enterprises by increasing tax deductions for research and development costs. Furthermore, personal income tax policies will also undergo retooling to slash taxes payable by low-income earners.

Apart from tax cuts, due -- and more -- attention should rest on lessening administrative fees payable by companies. Efforts should go to abolishing administrative fees and capping the administrative service charges priced by the government.

4. Does a property tax lurk within the government's legislative agenda for 2018?

Yes! The long-term real estate market regulatory mechanism will debut this year, meaning that the national legislature will eventually include this extremely contentious national issue of a property tax on its agenda.

Given the fully-developed property transaction tax system, the tax will be introduced mainly to further improve the real estate tax system and structure, rather than to stem housing price growth. The public should not over-anticipate what this new tax can achieve. The principle of 'statutory taxation' dictates that property tax legislation will achieve a major breakthrough and find inclusion in the national legislative agenda this year.

5. Will Chinese manufacturers see a reversal of their decline in relative competitiveness?

As the most effective metric of China's manufacturing costs, unit labor cost (ULC) will continue to trend downward this year, but Chinese manufacturers will be able to maintain their relative competitiveness at current levels nonetheless.

Yicai introduced the ULC index to reflect the overall competitiveness of the global manufacturing industry, especially the real-time competitiveness of Chinese manufacturing and its sub-sectors. The index covers 20 sub-manufacturing markets in 18 countries. A rise in the unit labor cost typically indicates that growth in nominal labor costs has outpaced productivity growth. A higher ULC score assigned to a country means it is less competitive on the global market.

China is the only major manufacturing power that has registered an increase in ULC since the 2007-2016 financial crisis, meaning that the country's relative competitiveness weakened over that timeframe. Nevertheless, China's absolute ULC has been waning after peaking in 2014, and the downtrend will continue this year. In other words, productivity growth will still outstrip wage rises for manufacturing workers, but this alone will not serve to significantly bolster the relative competitiveness of Chinese manufacturing.

6. Will China roll out its 'rural land and property rights mortgage' reform nationwide?

It's unlikely we will see this policy, known as the 'two rights reform,' extend across the country this year, but it will be coming over the next few.

This change will increase farmers' property income by revitalizing land assets in rural areas. The State Council, China's cabinet, piloted the scheme in 2015, but legislation and other infrastructure still need to improve before it can go nationwide.

Legally recognizing farmers' land rights is the legislative foundation for the rollout of the two rights reform. The Standing Committee of the National People's Congress has thoroughly reviewed the Amendment to the Rural Land Contracting Law and is likely to adopt it in the first half of this year, meaning farmers' land rights will be legalized by year-end. The two rights reform cannot be implemented nationwide until this is complete.

7. Will China unveil more free trade port plans?

It is in the interest of both the central and local governments to introduce more free trade port initiatives.

The central government has pledged strong support for free trade port development, and local governments are keen to introduce them. Their only concern is that they may be outmaneuvered in the upcoming waves of free trade port development.

Shanghai got approval to build a free trade port in March, and Guangdong, Fujian and Zhejiang provinces are also planning to construct their own. The Zhejiang project is already in the pilot stages, so we'll likely see more of these ports this year.

8. Has China's PM2.5 pollution passed its peak?

Air pollution in North China is past its peak. People in the region will see more blue skies this year.

The government's pollution control efforts have led to mixed results for residents in North China. The good news is that the start of the heating season last year did not bring smog to the region and Beijing reported several days of excellent air quality, something that was beyond imagination in the past. On the flip side, heating has been cut off in some northern cities after a natural gas shortage and coal furnace closures.

Last year, the government adopted unprecedented measures to curb air pollution, including a stringent production ban and initiatives to substitute coal with natural gas and electricity. The measures significantly improved air quality in North China, with one study showing PM2.5 concentrations in Beijing fell to a four-year low. These environmental protection measures are intended to solve the structural bottleneck in pollution control in the region. Starting this year, air quality in North China should take a turn for the better, assuming these measures are effectively implemented and don't affect the heating supply for local residents.

9. Will China plant more trees than other countries?

China will plant more trees than any other country over the next few years, as the government will prioritize pollution control and China's top-level policymakers will seek to make the country's skies blue again.

The nation will kick off an extensive afforestation campaign this year. All members of society will be encouraged to invest in the development of professional ecological protection and restoration enterprises. The government will also introduce market-oriented ecological compensation mechanisms to ensure satisfactory progress in its afforestation efforts.

At a practical level, China's ecological restoration market has enormous potential for development. The per-capita forest area in China is 75 percent less than the global average. The quality of more than 60 percent of groundwater is poor or very poor, and nearly 20 percent of the country's farmland is polluted.

The nationwide afforestation campaign will benefit many companies. The share price of ecological restoration firms on the A-share market will likely increase by more than 50 percent this year, one brokerage forecast.

10. Will the Financial Stability and Development Committee reshape financial regulation in China?

The State Council set up the Financial Stability and Development Committee last year, years after other G20 countries. The committee's well-thought-out organizational structure will completely reshape the financial regulatory landscape in the country, putting an end to decoupling and even friction between regulators at the highest level and national ministries and commissions.

Since the global financial crisis, China's financial markets have integrated at a remarkable pace as a result of the CNY4 trillion (USD615 billion) stimulus package and the rise of internet finance. Massive amounts of capital flew to the financial system and regulatory arbitrage drove shadow banking, but an unprecedented increase in the number of new financial businesses led to regulatory vacuums in the financial markets.

As risks increase, different regulators have divergent opinions on individual issues, which has affected decision making at the highest level. The stock meltdown in 2015 was a kicker to policymakers, who realized then that a financial regulatory reform was imperative.

In its first battle to push forward collaborative regulation, the committee broke down barriers between regulatory authorities in the asset management market, and this will continue to unfold in 2018.

11. Will the PBOC hike interest rates further?

It is almost certain that China's central bank will raise open market and lending facility interest rates again this year, but the frequency and extent of rate hikes by the PBOC will be limited relative to rate hikes in the US.

Last year, the central bank nudged up open market and lending facility rates three times, and the reasons are obvious. It needed to maintain China-US interest spread at the current level to smooth out the impact of the Fed's rate hikes on the yuan's exchange rates and capital movement. Furthermore, the bank wanted to reinforce its stance on financial deleveraging and financial regulation by harmonizing its policies with those of other financial regulators. Thirdly, the rate hikes helped to trim the spread between the reverse repo rate and the interbank rate, limiting the room for arbitrage.

All these reasons and considerations will hold true this year. The central bank pumps liquidity into the market typically through open market operations and various lending facilities. This year, however, considering the underlying principle of 'keeping systemic risk in check,' it is unlikely for the PBOC to raise open market or lending facility rates significantly or frequently in 2018.

12. Will China be the first to issue a digital legal tender?

The PBOC or central banks in other countries may experiment with digital fiat currency this year, but the experiments will be limited in scale.

Cryptocurrency investment markets are notorious for wild volatility and speculation and security hazards. In some cases, Bitcoin was reduced to a tool for money laundering and terrorist financing activities conducted under the guise of blockchain and digital currency technology. Central banks of major economies have become increasingly aware of the risks associated with cryptocurrencies.

They have kicked off studies on digital legal tender. As one of the 15 industry-specific agencies under the United Nations, the International Telecommunication Union (ITU) has set up a dedicated focus group to investigate digital fiat currency, and the Chinese central bank has been actively involved in the work.

China's digital fiat currency should be developed and issued by the PBOC employing certain digital technologies. Given the country's leading position in the electronic payment space, it is capable of creating the world's first digital legal tender, the electronic alternative to cash, before anyone else. Having said that, the Chinese government is dithering on the matter due to wildly divergent opinions from various sources, so some other developing countries may well seize the opportunity and release their digital fiat currencies in 2018.

13. Will the yuan head for another showdown against the dollar?

It is very likely to happen, but the yuan's value will remain stable despite downside pressure. The yuan-dollar exchange rate will stabilize and stay above 6.8 in 2018, although a strong dollar will place the yuan under considerable downside pressure.

China's economic fundamentals have stabilized, so should be the price of its currency -- in theory, at least. But market sentiment is an important factor affecting short-term exchange rate fluctuations. The PBOC has introduced a 'counter-cyclical' factor in the 'macroprudential' policy framework to enhance its capability in terms of steering market expectations. Given China's unrivaled foreign reserves, the bank stands a good chance of winning the tug-of-war against speculators, as long as it makes sure that measures it adopts are appropriate and investors are well-informed of its intention.

14. Will a free-floating yuan become a reality?

The answer is no.

China must push the exchange rate formation mechanism reform in the right direction and at its own pace. For Chinese policymakers, this year is not a good time to introduce aggressive reforms.

The Fed is expected to make three rate hikes this year, and the 'year of balance sheet unwinding' has begun. It remains to be seen as to how the Trump administration's tax reform will affect international capital movements (profit repatriation by American multinational companies). Furthermore, the Chinese economy has come to a turning point amid growth model transition.

So Chinese policymakers will continue to push forward the exchange rate reform and ward off radical ideas at the same time. The central bank may allow greater intraday fluctuations, and the exchange rate formation mechanism will be more market-oriented, but there is still a very long way to go before the yuan can be floated freely.

15. Will China roll out the 'Southbound Bond Connect' program?

The chance of it happening is rather slim.

This year, China will push ahead with the financial 're-opening' campaign that it introduced late last year, focusing on financial market deregulation and financial market re-opening. On the other hand, policymakers are still cautious about relaxing the control on capital account funds outflow, meaning that we are unlikely to see the launch of the 'Southbound Bond Connect' program this year.

Bond connect is one of the most eagerly-awaited reform measures in 2018. Whether it will be implemented or not largely depends on global macroeconomic conditions. With monetary policies being normalized in major economies, more money is expected to flow out of emerging markets. Although the yuan's exchange rates have stabilized, the PBOC will remain wary of lifting capital outflow restrictions in the near future, so we are unlikely to see the introduction of the 'Qualified Domestic Individual Investor' (QDII 2) or 'Southbound Bond Connect' programs this year.

16. Will the amended 'Securities Law' be promulgated?

China's stock market has been stable. The existing 'Securities Law' needs to be amended, as dictated by the development of the real economy. We believe that the amendment to the law will pass the third review this year.

As the basic law for the securities investment, the 'Securities Law' covers all aspects of the securities markets including stock and bond issuance and transactions and investor protection. The amendment focuses on the initial public offering (IPO) review and approval system. Under the existing law, China Securities Regulatory Commission makes definitive judgment on the quality of companies applying for an IPO on the A-share market. Such an IPO approval system has many drawbacks. In late 2013, the CSRC kicked off a new round of IPO system reforms toward a registration-based review mechanism.

An amendment to the 'Securities Law' appeared in the national legislature's agenda in 2014, but the effort has suffered several setbacks since then. This year's Central Economic Work Conference shifted the focus of economic development away from speed toward growth quality, calling on the capital market to provide easily-accessible financing channels for innovative tech startups. "Relevant parties are actively pushing" a number of legislative proposals including the amendment to the 'Securities Law,' disclosed CSRC's Assistant Chairman, Huang Wei.

The time is ripe to amend the law. The revised law will better fit the needs of China's economy.

17. Will value investing dominate stock markets in China?

Value investing will continue to gain traction on the A-share markets in 2018.

The Fed's unwinding of balance sheet means that market rates will likely go up rather than fall this year, leaving very limited scope for increases in A-share valuation. Instead, earnings growth will be the major driver of stock performance. In other words, value stocks will continue to dominate the A-share market in 2018.

Valuations of some blue chips have reached relatively high levels after successive rallies over the past 12 months. These firms are mostly leading players in their respective markets, allowing them to benefit substantially from China's economic restructuring. Investors should compare their earnings results against the share prices, and adjust investment allocation based on changes in stock valuations.

As for growth stocks, only companies with core competitiveness and genuine growth potential will stand out in the market, while the lack of concrete earnings results will doom 'pseudo growth' stocks to elimination.

Below are our answers to questions number 18 to 21 of this year's Yicai Global economic forecast series. The topics include whether MSCI Inc. will include 5 percent of China A shares in one go and who will be the first to debunk the 'guaranteed return' myth on the asset management market.

18. Will socially responsible investing gain in popularity?

Socially responsible investing, or social investing, will become more popular in 2018, provided that a more favorable environment can be created by related parties.

Are capital investment and morality really mutually exclusive? This question became the focus of public debates after the crackdown on 'cash loans' and a child abuse scandal exposed at a nursery in Beijing late last year.

Social investing is a socially-conscious investment strategy that seeks to consider both financial return and social good in investment target selection. What happened last month might have awakened a stronger sense of ethics among Chinese consumers, so we may see the birth of socially responsible investing in China this year. As the media industry continues to develop, information about the impact of a given company's behavior on the society has become easily accessible to the public, and this information will play an increasingly important part in consumer decision-making as to which products and services they will buy. Only in this way, capital and morality can become compatible.

19. Will MSCI include 5 percent of China A-shares in one go?

It is possible.

China has made some headway in capital market opening in the last several years. The inclusion of the A-share market in the MSCI index last year is widely seen as a sign that the Chinese stock market is gaining recognition on the global market.

The 222 A-share stocks included in the index so far account for merely 2.5 percent of the total capitalization of this market, owing to the fact that China's securities regulators have set daily limits on the trading volume of the Shanghai-Hong Kong and the Shenzhen-Hong Kong stock connect markets. The CNY10 billion (USD1.5 billion) daily limits only represent a tiny fraction of the CNY400 billion daily trading volume on the A-share market. Greater elasticity of the yuan's exchange rate will allow regulators more flexibility in dealing with short-term capital outflow, so it is possible that they may decide to lift the limits on daily trading volume.

Most foreign investors have concerns about quota allocation and profit repatriation connected with the Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors (RQFII) programs. China will improve relevant policies to make A shares more accessible for overseas investors. All these changes will increase the likelihood of MSCI including 5 percent A-shares in one go this year.

20. Who will be the first to debunk the 'guaranteed return' myth on the asset management market?

This year will see Chinese asset management firms break 'implicit guarantee of returns.' The question is: who will be the first to do so?

Rising financial leverage has led to a build-up of risks in the Chinese financial industry, and there has been a growing call to break guaranteed payment of principal and profit. The government has identified 'prevention and mitigation of major risks' as the first of the three 'tough battles,' meaning financial deleveraging and risk prevention will remain the top priority for financial market regulation. China's top-level policymakers are determined to put an end to the practice of guaranteed return on investment, as is clearly manifested by the roll-out harsh asset management market regulations last year.

21. Will asset management 'conduits' disappear in China?

If tight regulation continues this year, asset management 'conduits', represented by trusts and subsidiaries of funds, will disappear from the Chinese financial market. The financial market is no longer a place where anyone can just jump in and make a lot of money. In future, the performance of different publicly-offered funds will vary greatly. Smaller, less competitive fund firms without any market differentiator will find themselves in a constant struggle to stay afloat.

22. Will local SOEs play a leading role in mixed-ownership reforms in 2018?

MORs will accelerate this year, and the focus will shift toward local SOEs.

China has made some major breakthroughs in the MOR program, which many see as a groundbreaking move in reforming the SOE sector of the world's second largest economy. The government has kicked off three MOR pilot projects among 50 SOEs in key industries such as the energy, telecoms, transport, civil aviation and defense sectors.

China will advance the MOR program at an accelerating pace this year, and local SOEs will likely play a dominant role. Private investors will be allowed to take part in SOE reorganization projects, and state-owned capital will probably get the go-ahead to invest in non-state-owned enterprises. Tech firms, including high-tech, research-institute-turned-enterprises and technology service enterprises, will have a wider scope for introducing MOR initiatives and employee stock ownership plans, while post-MOR state-owned enterprises will likely scale up existing staff ESOP schemes.

23. Will State Power Investment Corp. merge with Huaneng Group?

This year will see the birth of another energy behemoth after China Energy Corp.

The Chinese government pushed SOE reforms in the energy sector with remarkable efficiency last year. It only took Shenhua Group and China Guodian a few months to carry through the unprecedented SOE merger that formed the largest utility provider in the world. Through business integration, the central government wants to optimize resource allocation in the energy industry, and put an end to product homogeneity on the electricity market. The State-owned Assets Supervision and Administration Commission has decided to drive mergers between energy central enterprises to achieve these goals.

A merger between SPIC and Huaneng is likely to be the next step in the SASAC's plan to reduce the number of central energy enterprises from five to three.

"We all want to be together…you ain't seen nothing yet," said SPIC's chairman Wang Binghua.

24. Will Internet of Things protocols be harmonized in China in 2018?

No. Like industry standards in other areas, IOT protocols will go through a transition from disunity to harmonization, but the second phase will not come this year.

The IOT links devices and objects with wireless networks via sensors, and IOT protocols are the language for such connections.

Device manufacturers choose different communication protocols for their products to maintain unique competitive advantages. Protocol developers keep adapting their protocols to the latest developments in IOT technology and releasing upgrades to expand market share.

Industry associations are an important driver of standards harmonization. Existing IOT associations lack the authoritativeness to unite the fragmented market.

Three forces -- a clear-cut competitive landscape, emergence of a dominant industry association and government intervention -- can push IOT protocols to merge, but we are unlikely to see any of them become a reality in 2018.

25. Will Chinese e-commerce retailers deliver explosive sales growth on Singles' Day again in 2018?

Explosive e-commerce sales growth in China is the result of the rise of e-commerce and its sweeping victory over traditional retail during the last decade or so, but the situation has started to change.

Singles' Day (Nov. 11) sales on Taobao, the e-commerce marketplace of Alibaba Group Holding Ltd., grew from CNY50 million (USD7.7 million) in 2009 to CNY168.2 billion in 2017. Another leading Chinese e-commerce company, JD.com Inc., also posted sales of over CNY120 billion during the annual online shopping festival last year.

Rising costs of customer acquisition and an inability to further improve shopper experience are reshaping the relationship between online and offline retail businesses from a competitive one to a cooperative one. We predicted in last year's forecast series that offline retail would revive, to find a new position for offline stores in tomorrow's retail market, rather than to bring back conventional retail models.

Of course, e-commerce businesses will continue to advertise the annual shopping festivals, but it will be more about touting their competitiveness, because sales growth will depend on their marketing skills and planning, not organic growth based on supply and demand dynamics.

26. Will Mobike merge with Ofo?

This is likely to happen. Just like what happened in the group buying, food delivery and cab-hailing markets a few years ago, bike-sharing businesses resorted to 'customer subsidization' to get ahead of competition. They have been rolling out new bicycles at an accelerating pace even though they still have not established a viable business model.

Mobike and Ofo are the dominant players in China's bike-sharing market. There has been fierce rivalry between them, but venture capital firms are pulling the strings behind the scenes. The founders of both firms are not willing to see a merger between them, but they cannot change the tug-of-war in the capital market. Unlike group buying, food delivery and cab-hailing services, bike-sharing is a capital-intensive business that requires a high degree of operational effectiveness. It is closely associated with the IOT, mobility and mobile payment services, making it difficult for either party to end the battle easily.

The bike-sharing market is reaching a saturation point, and major venture capital companies have already made their choice, so there is a good chance the two market leaders will merge this year.

27. Will payment to showbiz celebrities fall significantly in 2018?

Yes.

Government policy, above all, influences such activity. Last year, five national ministries and commissions issued a joint statement, noting that "broadcasters are prohibited from using the popularity of actors and actresses as the sole pricing criterion." The television series production committee of the China Alliance of Radio, Film and Television also introduced policies, providing that the amount paid to the cast of a film or TV production should not exceed 40 percent of the production cost, and that the amount paid to the main actors and actresses should not exceed 70 percent of the cast's total remuneration, with at least 30 percent paid to the supporting cast.

In addition, as the Chinese entertainment industry continues to develop, the old development model relying purely on actor and actress popularity is no longer sustainable. For example, A Love So Beautiful does not have a star-studded cast, but it was played more than 100 million times within a single day after release.

Showbiz celebrities' salaries are likely to fall in 2018.

28. Will RCEP talks be concluded in 2018?

Negotiations about the Regional Comprehensive Economic Partnership, a free trade pact proposed by the Association of Southeast Asian Nations will be concluded in 2018.

Parties have held twenty rounds of talks and ministerial meetings since the start of RCEP negotiations in 2012. The end of the talks has been postponed mainly because the countries are at different development stages and have different needs in terms of trade and investment facilitation.

The first meeting of RCEP leaders was held last November. The summit's joint statement said that all the countries will "intensify efforts in 2018 to bring the RCEP negotiations to conclusion." They will be able to wrap up the talks this year, as long as they work to strike a balance between the interests of different parties.

Below are questions 29 to 32 of this year's Yicai Global economic forecast series. Topics covered in the discussions include conflicts in the Middle East and Northeast Asia and trade frictions between China and the US.

29. Will a minor regional war break out in the Middle East or Northeast Asia?

The possibility of a war is extremely small.

The Korean Peninsula has become the arena of a tug-of-war between some of the world's major powers. All the countries will try to solve the issue through dialogue to avoid inadvertently triggering major conflicts as a result of strategic misjudgment.

The Middle East issue involves racial, religious and territorial conflicts and long-standing feuds between countries in the region. The US' reckless actions have compounded the situation. No country will be able to break the status quo in the region in 2018.

30. Will Vladimir Putin be re-elected?

Yes, it is 100 percent certain.

President Putin announced his decision to run for the March presidential election in early December, and the result is highly predictable.

Twenty-two people have signed up for the election. However, considering Putin's 80 percent approval rating in the latest opinion poll, his extensive political experience and personal charisma, none of the other candidates poses a serious threat to the incumbent president. The absence of a systematic campaign program is constraining their ability to challenge Putin. The last obstacle to Putin's re-election was removed when the opposition leader, Alexei Navalny, was barred from running for president in the March election. Putin will remain as a central figure in world politics.

31. Will a trade war break out between China and the US?

Sino-American trade frictions will intensify, but a trade war will not happen.

President Donald Trump's foreign trade team will be formed after some senior positions at the Office of the US Trade Representative and the Department of Commerce are filled this year. Many of the newly appointed officials are experts on antidumping and countervailing investigations against Chinese products, including senators who have been monitoring China's economic and trade policies for over a decade. Trade frictions between the countries are expected to intensify, and the focus will remain on steel, textiles, chemical products, raw materials and agricultural goods. Policy tools at the disposal of the US government include antidumping and countervailing duties, intellectual property protection, labelling China as a 'currency manipulator' and possibly 'proactive' probes based on century-old laws such as the '1930 Tariff Act'.

However, a trade war entails prohibitive costs, so it is not the best option -- if it is an option at all -- for President Trump and even for the China hawks in the American cabinet.

32. Will the Republicans keep their grip on the US Senate and the House during the midterm election?

The Republicans' high approval ratings can hardly give them any advantage in the election.

All the 435 seats in the House of Representatives and 33 seats in the Senate will be contested in the midterm election this year. The Democrats may face a challenge from the Republicans in the House, but it will still be able to maintain its leading position in the Senate. Of the 33 Senate seats to be affected, only eight seats are currently held by the Republican Party, two are held by independent but pro-Democratic members, and all the remaining 23 by Democrats, putting the Democrafts at a clear disadvantage. The Republicans are very confident in maintaining the lead in states dominated by blue-collar voters, and the Republican base in swing states has remained solid. Furthermore, most voters who voted for Trump in the past will not switch allegiance in the election.

33. Will the Trump's trillion-dollar infrastructure plan be implemented?

It is highly likely.

In 2017, the Trump administration's health care reform bill suffered a setback, but the tax reform bill finally passed at the year-end after going through difficulties. In 2018, large-scale infrastructure projects are likely to become the focus of the Trump administration. The White House also announced earlier that it will launch the infrastructure reconstruction plan in January 2018.

The Trump administration plans to work with both states and the private sector to co-finance the infrastructure projects to ease financial pressure on the federal government.

34. Will US dollar index rise above 100?

The dollar is expected to strengthen in 2018. It is expected to exceed the 100 mark in the first half, and will then moderately weaken from a high level in the second half.

Strong gross domestic product (GDP), employment and consumer data, effects of the tax reform and some overseas enterprise profits flowing back to the US will support the strengthening of the greenback.

Not surprisingly, the Fed rate hikes will be gradual as expected, while major central banks in Europe, Japan and other countries cannot quickly follow. So, the level of spread is also conducive to the flow of funds to the US to boost the dollar.

However, as the impact of such factors could gradually diminish by the second half of the year and the scale of the capital construction plan may not yield the expected results, the Fed may adopt a more cautious monetary policy stance. Trump may have an impact on the dollar from time to time as well. On the other hand, the economies of Europe, Japan and China are also expected to show a recovery trend, which will drive the euro, Japanese yen and Chinese yuan stronger. All of the above may make the dollar weaken, with the dollar index is likely to moderately drop from a high level.

35. Is the yield curve of the US Treasury is steeper?

With the Fed continuing the normalization of monetary policy, the curve of the yield of the US treasuries will turn steep. At early 2017, the spread between the 10-year US Treasury and the two-year Treasury bonds was 124 basis points, but the spread is now just under 60 basis points. Experience shows that there is a strong positive correlation between the steep curve of the Treasury bond yields and the growth of corporate profits.

As unemployment rates in the US continue to decline, labor market tensions will boost inflation and push up long-term inflation expectations in 2018. In addition, the Fed's plan to reduce its balance sheet will also play a similar role, due to improving market expectations and reducing the artificially depressed long-term Treasury yield on asset purchase programs.

36. Will Merkel support Macron to create "fiscal union"?

Not likely.

In the Europe Union's practice, endogenous reforms always lack impetus unless there is a major external crisis that prompts EU reforms. Since the birth of the EU, its positioning has swayed among intergovernmental coordinating bodies and super-sovereigns. After the veterans of the older generations of Britain, France, and Germany retreated from EU's political arena one after another, the new consensus around German Chancellor Angela Merkel sets the EU's position firmly on the "intergovernmental coordinating body," role, which never went beyond that in Merkel's previous three terms.

Emmanuel Macron, vowing to set a revival schedule for the EU in 2018, is about to touch the old puzzler, a European fiscal union, about which his predecessors could not reach consensus with the Germans. In 2018, Macron will rely on apparent French-German cooperation without external forces. If Merkel's failure to form a cabinet triggers a re-election, Macron's plans to revive the EU will also face uncertainty.

37. Will European Central Bank exit QE?

After the quantitative easing expires in September 2018, the ECB is expected to further reduce the size of it, but will not be in any hurry to withdraw from it.

The economic recovery in Europe has been strong since last year. In the latest interest rate decision meeting last month, the ECB substantially raised its economic growth expectations. It also revised its inflation forecast for the first time, raising it to 1.7 percent in 2020 and said that the most crucial thing is not to look at a few percentage points between the inflation expectation and the target gap. What is more important, it went on saying, "how close can inflation be kept at a self-sustained path?"

The relation between QE debt purchase programs and inflation will not be eliminated and debt purchase plan will not come to an abrupt end, said ECB President Draghi as part of the bank's future outlook. The consensus is to maintain the assets purchase program with an "open ending," he added.

38. Will global stock market remain a bullish one?

The bullish global stock market has not come to an end yet. In 2018 the global economic recovery will continue and Trump's tax reform will also bring a new positive impact. Although the possibility of geopolitical conflicts increase, only part of the region will be affected. Global economic growth is expected to exceed 3 percent in 2017 and the growth of most countries will be higher than the previous year. This is a comprehensive recovery that has never appeared since 2011. The situation continues. OECD forecasts that in 2018, global economic growth will exceed that in 2017 and reach peak in five years.

The global stock earnings per share had more than two-digit growth in 2017, corresponding to the MSCI global index rising more than 20 percent in the same year. If global economic growth continues in 2018, the sustainability of corporate profit growth will be guaranteed. In addition, the US tax reform policy will also improve the profitability of the US enterprises in 2018, which will further stimulate the world's largest stock market. So the global stock market feast is not over yet.

39. Will average international crude oil prices continue to rise?

It is right.

At the end of November 2017, Organization of Petroleum Exporting Countries, known as OPEC, Russia and other non-OPEC producers decided to extend the production cut agreement until the end of 2018. At the same time, crude oil stock over five years average has fallen by about 200 million barrels. Furthermore, some factors such as rising geopolitical risk of OPEC member countries have led to the decline in production. These factors are conducive to restoring the balance of supply and demand and boosting the international oil price.

However, with the rebound in oil prices, a number of projects have resumed production. The US shale oil production is expected to increase in 2018 which will offset some of the OPEC production cut effects and will drag down oil prices. The production of shale oil in the US is always the biggest risk for crude oil prices.

This is the concluding part of this year's Yicai Global economic forecast series. Topics discussed below include bitcoin, the gap between rich and poor and artificial intelligence.

40. Will the bitcoin rollercoaster continue?

People hoping to see the volatility of bitcoin price abate after the rollout of bitcoin derivatives will face disappointment this year. Price volatility is a key criterion in assessing the digital token's suitability as a currency. As of Dec. 25, bitcoin registered average volatility of 8.03 percent for the full-year 2017, as compared to 0.52 percent and 0.57 percent in the case of the S&P 500 and US dollar indexes.

Traditionally, financial derivatives are developed to help users of underlying assets avoid risks, facilitate the price discovery process and reduce volatility. However, these traditional functions of derivatives do not apply to the bitcoin phenomenon. Bitcoin is not supported by value, and its price is extremely volatile because there are no genuine users to keep fluctuations down through the price discovery process. All these characteristics will remain the same after the launch of bitcoin derivatives. On the contrary, the lack of depth and the manipulation-prone nature of the bitcoin market will make price fluctuations increase even further. Bitcoin will remain a speculative investment for the foreseeable future, rather than a currency, regardless of whether its price rises or collapses.

41. Will policymakers be able to reduce the gap between the rich and the poor?

No.

Countries worldwide will not succeed in their attempts to tackle the widening gap between the rich and poor in 2018. Dwindling demand, the rise of populism and a widening gap between the rich and poor are the root of the major challenges facing the global economy today.

The market cannot solve these issues by itself. The information technology industry will almost certainly evolve into a winner-take-all market, and the substitution of labor by capital in the artificial intelligence era has, to a considerable extent, worsened inequality in wealth distribution, because the wealthy control capital.

Government-led secondary income distribution is the biggest hope, but the existence of regulatory arbitrage practices means that it is a viable solution only if countries worldwide can collaborate with each other. In reality, however, the opposite (rivalry, rather than collaboration) seems to be the case.

42. Will the number of office-less companies increase dramatically?

Office-less businesses will not proliferate in 2018, but they are the future trend and will change many industries.

New technology will be applied to solve various issues associated with an office-less work environment, including management and communication difficulties. Labor cost is the most important factor in the sharing economy, with companies adopting task-driven business models and integrating resources for the purpose of problem-solving. Any individual may work on different platforms.

As a growing number of companies choose the office-less operating model, it will lead to significant changes in people's lives. Traffic congestion will become less common in big cities, and business districts will gradually disappear and be replaced by community-based business centers. Certain public policies will be adjusted accordingly. For example, the social security system will be adapted to the new business organization forms.

43. Will AI usher in the age of 'small data'?

Big Data will play a significant role in the development of AI technology in 2018. However, AI will be increasingly driven by independent learning. AlphaGo has defeated top human Go players such as Ke Jie and Lee Sedol, but it lost to its successor AlphaZero, a new AI program developed by DeepMind. The new software no longer requires historical data and sophisticated algorithms. Instead, it is capable of 'self-evolution' with the assistance of a convolutional neural network and reinforcement learning.

Technological Singularity will happen once AIs acquire the ability to think using the new training method. They may even outshine humans in scientific and technology research and innovation activities.

44. Will Moore's law collapse?

We may see the end of Moore's law in 2018, but consumers will still benefit from advances in technology.

Moore's law is the observation that the number of transistors in a dense integrated circuit doubles approximately every two years. To a certain extent, this observation explains the rapid development of the semiconductor industry over the last several decades. It attests to Gordon Moore's remarkable predictive power. Furthermore, the predictive accuracy of Moore's law is also attributable to the fact that it became a self-fulfilling prophecy reinforced by semiconductor developers and manufacturers through business planning.

However, the law is about to fail. In future, the focus of semiconductor development will shift toward reducing power consumption, integration method innovation and new material development, and the industry will no longer be obsessed with the size of transistors.

45. Will advances in biotechnology lead to breakthroughs in cancer and AIDS treatment?

This is unlikely to happen. For the most part, biotech development is still limited to basic research, and applied studies have not started, so the new technology is unlikely to bring about any major breakthroughs in the treatment of cancer or AIDS.

Gene therapy mainly involves deciphering information extracted from blood, and properly storing such data. It has proved more difficult than expected due to the prohibitive costs of performing these tasks and the storage and computing technologies required. New discoveries and advances have been reported every week, and the same will continue to happen this year.

46. Will 'tri-parent' baby technology provoke more ethical controversies?

Ethics always cause a bottleneck in the development of technology, especially when the technology concerns mankind itself. The 'tri-parent' baby technology is bound to become more contentious in 2018.

The technology uses the healthy mitochondria of an egg donor to replace defective mitochondria in the mother's body before the egg is artificially inseminated to prevent the baby from acquiring fatal mitochondrial diseases. The baby will inherit her parents' and the donor's genes. It creates the 'perfect' human body, but fierce ethical controversies surrounding the technology have prompted some countries to put a ban on it. In some other countries, the development of tri-parent technology has been strictly restricted to research purposes. Almost all technologies will sooner or later become the subject of ethical debate. What we can do is to plan the development path taking ethical issues into consideration, or we may pass over the potential issues until they actually arise in future.