China’s economy (officially) in 2020: quite easy to predict

15:08 by Hubert Fromlet, Kalmar

Kinas (officiella) ekonomi 2020 – relativt lätt att prognostisera

Vanligtvis presenteras prognoser så här års med tillägget att bedömningar för det kommande året denna gång ter sig speciellt svåra. Åtminstone vad gäller den ekonomiska politiken och BNP-utfallet för 2020 verkar osäkerheten emellertid begränsad avseende Kina. Möjligen kommer det officiella tillväxtmålet för 2020 att sänkas något från 6-6 ½% i år till 6% exakt eller cirka 6%. Hur som helst, inför starten av den nya 5-årsplanen och firandet av kommunistpartiets 100 års jubileum år 2021 har det officiella Kina ej råd med en synlig tillväxtförsvagning.

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Usually, economists add to their outlook for the coming year that predictability this time is more limited than ever. In the case of China, however, such a kind of precautionary reservation for 2020 seems to be superfluous, at least for the official China. Reality, however, may look somewhat different, i.e. GDP growth may come in (slightly) lower than official national accounting will tell us. Who knows?

Very slight downward revision for intended GDP growth in 2020

2021 will be a very important year for the Communist Party of China with its 100 th anniversary of its founding and the first year of the new 5-year plan. For these important reasons, the political leadership of China has to deliver a GDP-growth rate around 6% in both 2019 and 2020.

The official objective of meeting a GDP-growth rate between 6 and 6 ½% in 2019 will certainly be met, probably very close to 6 ¼% (more exactly, my own number is 6.2 %). As regards 2020, an official objective for GDP like “around 6%” or “6% exactly” can be expected. This would mean only a very slight downsizing from 2019. But I cannot imagine any lower goal numbers than these two at this very moment.

Economic policy – (somewhat) more driven by demand-side policy

Chinese officials and economists also frequently point at the fact that the quality of growth is the main issue rather than the pure numbers. This is certainly right in theory and according to economic textbooks. However, it is hard to calculate how the distribution of annual GDP growth between more short-term sighted demand-side policy and more long-term driven supply-side policy really looks like. More transparency in this respect would be good for China as well.

Despite the ambition to conduct a prudent monetary policy, further cuts of the minimum lending rate (MLR) at the People’s Bank of China seem to be on the cards in the next year. In my view, cuts of the MLR tend to be the best signal by growth-worrying political leaders in China.

Anyway, the Chinese clearly want to apply supply-side policy in 2020 as well. The question is rather to what extent. Maybe (somewhat) less than in 2019 – but it still will be there, pushed also by Donald Trump according to the words of Phase One of Trade Negotiations between the U.S. and China (as mentioned in my previous blog from December 14).

Nota bene: For China very necessary parts of supply-side policy are embedded in the trade deal.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
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