The economy in China could fall into a range of 6.0% to 6.5% (GDP) in 2019 as the country prepares for tariffs to take hold this year, compared to the 6.5% target for 2018. Some analysts are concerned that growth could stall and the economic growth could fade below 6.0% – likely a scenario that would trigger concern in markets globally. Again, we at Classiarius are concerned about the possibility of a slowdown in Germany, the US, China and Japan for 2019 and 2020. What is interesting about the comments coming out of Beijing is that the government is now saying that 6.0% to 6.8% growth is possible.
Higher US tariffs and weakening China demand are the two drivers of weakness that analysts inside and outside of the country are predicting.
Data later this month is expected to show that China saw its GDP expand at a rate of 6.6 percent in 2018, the weakest since 1990. Analysts are forecasting further loss of momentum this year. Few expect 6.5% to be attained as the worlds second-largest economy losses steam. The service sector in China is solid but the fear is that the manufacturing sector could weaken and some factories are likely to shed jobs in 2019 and 2020. To shed workers in China spells trouble for the Party and the new President-for-life Xi.
Growth of 6.2 percent for the next two years is necessary for the goal of doubling the economy by the Communist Party by 2020. This would in the words of the party make China a “modestly prosperous” nation. So the 6 percent level will be watched closely – a fall below 6 percent will likely trigger an aggressive government policy response. Chinese leaders are now becoming pro-growth as they decided in recent meetings that the drive to reduce debt risks is not in the cards just now. Not a flood of stimulus but some all the same is on the table.
The property market is still a concern for officials, on tax cuts, the focus will be on lowering valued-added tax, which ranges from 6 percent to 16 percent. And local governments will be allowed to issue up to 2 trillion yuan worth of special bonds in 2019, up from 1.35 trillion last year, according to sources.
It is clear that the government is managing a soft landing for the economy – the key is the 6.0 percent pivot, does the economy grow higher or lower than this key number.