Chinese Economic Growth Rate Will Fall to Five Percent Range Next Year: Economists

September 27, 2019 Updated: September 30, 2019

A top Chinese economist recently said she predicted the Chinese economy’s growth rate will be below 6 percent next year, while the OECD (Organization for Economic Cooperation and Development) also revised its estimates down to below 6 percent.  

China’s economy rapidly developed after 1978, when the Chinese regime initiated economic reforms and opened up its export and import markets. After joining the WTO (World Trade Organization) in 2001, China greatly increased its exports. The economy’s growth rate once reached over 14 percent in 2008.

Losing Economic Engines

Cheng Manjiang, chief economist at the state-run Bank of China, said during an economic conference in Shanghai on Sept. 25 that the growth rate of China’s GDP (Gross Domestic Product) will likely be lower than 6 percent in 2020. She added that the economy’s growth rate will soon enter the “era of the five range.”

She explained that China’s economy had been riding on three “horses” to fuel it: investments, exports, and domestic consumption. However, the former two are in the process of leaving China; thus, the economy will not perform well next year.

Cheng explained that due to the impact of U.S. tariffs imposed as part of the trade dispute with the United States, China’s exports have fallen over the past year. In August, China’s exports decreased by 1 percent compared to last August.

According to China’s National Bureau of Statistics, China exported $214.8 billion this August. China imported $180 billion in August, which is 5.6 percent less than August last year.

The official data also shows that China’s imports and exports started dropping since December 2018.

Cheng further predicted that even if Washington and Beijing were to agree to a temporary trade deal in the near future, China’s exports would still face risks due to the upcoming U.S. presidential election in 2020, when President Donald Trump may win reelection. Trump has vowed that he would negotiate a “much tougher” deal with China if he wins.

“The pressure on exports will be big next year,” Cheng said. She suggested that the Chinese markets should prepare for a long-term U.S.-China trade dispute.

‘Eat Tomorrow’s Meal’

Cheng also used a Chinese proverb “yin chi mao liang [eating tomorrow’s food today]” to describe China’s current investment environment.

The Chinese central government allocates investments to each local government because most of the tax revenue is paid to the central government. She said that the allocated budget for 2019 has already been used up by local authorities. In September, the central government had to distribute funding from the 2020 budget, for local governments to invest in infrastructure projects and other investments.

Cheng said that China’s budget deficit would be higher in 2020, yet it is likely to be insufficient for all the investments local governments want.

Consumption

Cheng believed domestic consumption would still be relatively stable, but the Chinese regime’s biggest challenge is reforming the economy so that more value-added services—such as in education and medicine—are available for consumption.

Currently, Chinese spend more money on products than services. Cheng said that China currently lacks high-quality service products, while current services cannot meet people’s needs.

She added that another risk to consumption was the uneven distribution of wealth, meaning that only a small segment of the population are capable of consuming services.

China’s Growth Rate

The OECD lowered its forecasts for global economic growth in its latest report on Sept. 19, citing the escalating trade tension between the United States and China.

For China, the OECD estimated that the year-on-year economic growth rate would be 6.1 percent in 2019, and 5.7 percent in 2020.

In its previous forecast made in May, the OECD estimated that China’s economy would grow 6.2 percent in 2019, and 6.01 percent in 2020.

“Escalating trade policy tensions are taking an increasing toll on confidence and investment, adding to policy uncertainty, weighing on risk sentiment in financial markets, and endangering future growth prospects,” OECD said in its report.

Meanwhile, in the IMF’s (International Monetary Fund) latest outlook report from July, it estimated that China’ growth rate would be 6.2 percent in 2019 and 6.0 percent in 2020; both were 0.1 percent lower than the IMF forecast in April.

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