Economists predict slower growth for Chinese economy in 2019

A Chinese flag flies near apartment buildings in Beijing on September 11, 2015. Photo: Getty Images

China's gross domestic product (GDP) growth would be lower than 6.5 percent next year, the target the Chinese government has set for the full-year economic growth in 2018, according to several economists recently interviewed by Caixin, the country's leading news website.

Liu Ligang, chief China economist at Citigroup, predicted that China's economic growth might drop to around 6.2 percent in 2019 due to weak consumer spending since May and a drop in vehicle sales for five consecutive months.

China's automobile sales fell 13.9 percent in November from a year earlier, marking the steepest monthly fall in more than six years in the world's largest car market, showed statistics from the China Association of Automobile Manufacturers. The slump comes as China tries to shore up the cooling economy and fight a tariff war with the United States. Recently, China agreed to cut tariffs on American-built cars as part of a temporary ceasefire agreement in the ongoing trade conflict between the two countries, a positive sign for global automakers which look to China to drive revenues.

Differing on a notion that a personal income tax reform, which will be fully put into force in January 2019, will stimulate consumption and consequently drive GDP growth, Liu said that it has close connection with the overall economic environment. "If people do not feel confident about the prospect of the economy, they might prefer to use the money (saved by the personal income tax reform) for deposits or repayment of loans, rather than buying things," said Liu.

Facing the economic slowdown and external pressure, the Chinese government might deregulate the real estate industry in 2019. In the long term, Citigroup is pessimistic about the future of China's property market as the country's home vacancy rate stands at 12-26 percent. But once the long-delayed property tax is imposed, many empty homes would be soon traded in the market, said Liu. Some media reports said that the Chinese government is accelerating the legislation on the property tax reform and considering imposing the tax next year.

France's Natixis has a similar view of China's GDP growth. The corporate and investment bank predicted that the country's economic growth will drop to around 6.3 percent in 2019 based on the consideration for the sluggish consumption and volatility in exports and investment, which would be affected by the external economic environment.

Citigroup said that the downturn in the Chinese economy is expected to last until 2020, the year when China aims to become a moderately prosperous society.

However, Cheng Shi, chief economist of China's ICBC International, argued that next year's economic growth might stay at 6.5 percent, as a series of structural adjustment policies such as the monetary and fiscal policies released in July would guarantee that the economy does not go into a free fall.

Cheng thinks that China is improving the quality of its economy by increasing investment in high-end manufacturing, strengthening efforts in creating job opportunities and transforming science and technology into products and dragging people out of poverty.

Moreover, the contribution of the tertiary industry in boosting the economy is bigger than before, said Cheng. The tertiary industry accounted for nearly 80 percent of the GDP in the third quarter, said Cheng.

The Chinese government has kept its economic growth target for this year at around 6.5 percent. In the first half of 2018, China's GDP grew at 6.8 percent. In October, Yi Gang, governor of the People's Bank of China (PBOC), the country's central bank, said that China will achieve its economic growth target this year even as downward pressure increases. Yi's comment came days after the International Monetary Fund (IMF) lowered its 2019 outlook for China's economic growth to 6.2 percent from the previous 6.4 percent.

Chinese leaders are pulling the economy from low-end, low-quality consumer products to high-end goods and services in an effort to realize the plan to transform the country's economic development mode and foster sustainable growth.

China-US relationship a key factor

During a dinner meeting held during the G20 summit in Argentina earlier this month, Chinese President Xi Jinping and US President Donald Trump agreed on a trade truce for 90 days, during which the two countries have to reach a consensus needed to end the ongoing trade conflict.

Citigroup views the time-frame to be too short for the two countries to reach a consensus on the wide range of issues including intellectual property protection, forced technology transfer, cyber security and industrial subsidies.

The trade conflict has been widely seen as a big barrier in China's move to realize its economic growth target in 2019 and a negative factor for the global economy.

Citigroup estimates that if the United States imposes 25 percent tariffs on $250 billion of Chinese goods, Chinese exports would drop by 5.6 percent and 4.4 million people would lose their jobs.

Employment would be a top concern for the Chinese government in 2019, said Citigroup, adding that a 6.1 percent growth rate could help create 13 million jobs in 2019.

After the dinner meeting, the Chinese government made a goodwill gesture to mend fences with the United States by deciding to import more US agricultural products and suspend additional tariffs on American-made cars, and promised to equally treat US firms, said Lu Wenjie, China investment strategist at BlackRock.

"All these adjustments could not be materialized in the 90-day period, but it would help reduce risks and incorporate the two countries into a framework agreement," said Lu.

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