China’s government says its GDP growth rate next year will come in at … you guessed it: nearly 6%.
The official figure is expected to come out of the three-day Central Economic Work Conference taking place in Beijing later this month. Investors will want to see Beijing signaling more stimulus, something Xi Jinping has largely been against all year.
The official estimate of 6% to sub-6% is its lowest estimate yet. China’s official forecasters are expecting between 6% and 6.5% growth for 2019. Next year’s growth rate comes with the serious headwind of the trade war, with supply chain slowly moving out of China at great risk to the country’s blue-collar labor force.
To help second- and third-tier cities taking a hit from trade friction and the remapping of global supply chains, China’s government next year plans on issuing more than 3 trillion yuan ($424 billion) in local special purpose bonds to support provincial infrastructure projects, along with the central bank’s ongoing dovish monetary policy, the South China Morning Post reported on Friday.
“Beijing has kept sending the message in recent months that the slowdown is gradual and this is OK as long as the labor market is good,” Louis Kuijs, head of Asian economy research at Oxford Economics, told the Post today.
On Wednesday, State Street Global Advisors forecast China’s 2020 GDP falling to 5.8% next year from an estimated 6.1% this year.
China stocks number one!
The Deutsche X-Trackers China CSI-300 exchange traded fund (ASHR) is up … [+] 28.2% this year, beating the MSCI China Index and the MSCI Emerging Markets Index in spades.
While China has technically not had two quarters of negative growth, it is the only major economy where growth has slowed in every year since 2009.
Everyone’s growth forecast is dependent on the phase one trade deal.
“We assume that the U.S. and China will agree on a trade détente that freezes tariffs at current levels and forestalls already announced new tariff increases,” says Ajay Rajadhyaksha, co-head of global research for Barclays Capital.
Barclays’ view is based on the belief that Trump would not want to risk a further downturn in the stock market and economy heading into the campaign season, while China would welcome an opportunity for a breather until they find out who will control the White House in January 2021.
Both sides remain far enough apart that the risk of tariffs rising on December 15 remains high, though this does not seem to be the base-case scenario at many investment firms, including Barclays.
This week’s news flow on U.S.-China trade has been positive despite legislative swipes against Beijing over Hong Kong and Muslim minorities in the Western China province of Xinjiang.
Despite this, China invited Trump’s trade negotiators back to Beijing for another round of talks and President Trump is still that the “Phase 1” deal is likely, even if it happens next year instead of this month.
“We expect a Phase 1 deal to only be signed early next year, though with a postponement of the planned December 15 tariff hikes,” says Rajadhyaksha.
Another trade war pause sounds like another 6% growth target—more of the same old, same old for China watchers. Any move to pause would lend support to China stocks, at risk of finally selling off should trade headlines disappoint. China’s A-shares have outperformed the MSCI China, MSCI Emerging Markets, and the Hang Seng year-to-date thanks in part to the increase of mainland listed shares in large benchmark indexes.
See: China’s Great Wall Of Money — Forbes