China’s economic growth fell to a multi-decade low of within a whisker of 6 per cent in 2019. But this will not be the worst level it will hit, as growth of the world’s second-largest economy looks certain to decelerate further in 2020, breaking the politically and psychologically sensitive 6 per cent benchmark as it is dragged down by sluggish domestic demand and the US trade war.
The ruling Communist Party might yet achieve its hefty goal of doubling the size of the economy from 2010, thanks to its recent move to significantly revise upwards its previous gross domestic product estimates, after a census. But the once fastest-growing major economy will still face more pressure on growth in 2020, after a steady, decade-long slowdown.
This slowdown has accelerated since mid-2018 after US President Donald Trump launched and steadily escalated the tariff wars. China’s economic growth decelerated by about 0.1 percentage points per quarter in 2018 (from 6.8 per cent, to 6.7 per cent, 6.5 per cent and 6.4 per cent). In 2019, growth decelerated at a quarterly rate of 0.2 percentage points (from 6.4 per cent growth in the first quarter, to 6.2 per cent in the second and 6 per cent in the third). Growth is expected to slide further,to 5.8 per cent or lower in the fourth quarter.
All major indicators point to things getting worse rather than the better, suggesting the economy might fall further before bottoming out, as there is no clear sign of a short-term recovery.
The record debt and default problems involving corporate bonds and the bankruptcy of some small banks have underscored the severity of China’s hefty debt problems and constrained the government’s efforts to prop up demand and growth – such action would put the country’s fragile financial and banking system at further risk. A recent Financial Stability Report released by the People’s Bank of China described 586 of the country’s almost 4,400 lenders as “high risk”.
The partial US-China trade deal does not clear up the uncertain outlook as the tariff war will continue in 2020. Even after the deal is signed and comes into effect, Trump’s tariffs will still cover nearly two-thirds of all US imports from China, leaving the average US tariff on Chinese imports at 19.3 per cent, up from about 3 per cent before the trade war started.
The continuing trade war constitutes the biggest uncertainty for the export-oriented economy of China, which is also the world’s manufacturing hub. But the possibility of Washington and Beijing reaching comprehensive deals will also underpin China’s hope for a return to the path of sustainable growth. The irony is that China’s economic woes lie in its
party-led state-capitalism system, which is at the heart of Trump’s trade war and Washington’s demand for changes.
Some reformist Chinese officials and liberal academics have compared the possible US-China comprehensive trade deals to China’s groundbreaking admission into the World Trade Organisation in 2001 – it ushered in a new era of China’s development and enabled the communist state to embrace global capitalism.
In the phase-one deal, an 86-page document outlined Beijing’s commitments to a structural overhaul of state capitalism in nine areas, including intellectual property rights, forced technology transfers, financial and banking markets, exchange regime, policy transparency, and enforcement and dispute settlement.
Many hope that any phase-two or phase-three deals will work out further details with a viable road map for China to return to the path of market reform, which has stalled in recent years.
If so, 2020 might see worse growth but also raise hopes for a reborn Chinese economy. Hopefully, it will be the year where we see things bottoming out, and then rising.
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