eco TV Week

Economic slowdown in China

2/1/2019

In response to the economic growth slowdown, the Chinese authorities are adjusting their policy mix.

Christine PELTIER

TRANSCRIPT // Economic slowdown in China : February 2019

In China, economic growth slowed to 6.6% in 2018.

This growth figure was published last week. The authorities also revised down the growth rate to 6.8% for 2017. But most activity indicators have highlighted that the slowdown has already been underway since mid-2017.

Domestic demand growth has weakened, mostly because of the restructuring process in the industry and due to economic policy tightening. As a matter of fact, from late 2016 to the spring 2018, the authorities tightened monetary policy, property policy and, most importantly, strengthened financial-sector regulation.

All this has led to a decline in financial-instability risks. But it has also led to slower domestic credit growth and weaker investment.

Private consumption growth also slowed last year. Chinese households experienced a new period of income growth moderation. This has obviously been a consequence of the difficulties of the manufacturing industry.

These difficulties have worsened recently. Exports have started to feel the impact of US protectionist measures. Exports lost steam in November and contracted in December.

In response to the economic slowdown and rising difficulties of the corporate sector, the authorities have adjusted their policy mix.

Monetary policy has been eased timidly in recent months. It is aimed at reactivating lending to the private sector, especially to SMEs. Local governments have been authorized to issue more bonds and, in fact, investment growth in public infrastructure rebounded in Q4 2018.

However, the decline in interest rates and the recovery in bank loan growth have been very moderate so far. As a matter of fact, the central bank’s room for maneuver is very narrow due to the debt excess of the economy. Monetary policy is also constrained by the risk of capital outflows. This is a problem because China’s external constraint is already narrowing due to falling current account surpluses, and currency depreciation would further feed trade tensions with the US.

Therefore, the authorities will have to make more use of fiscal stimulus measures. Household and corporate income tax cuts have come into effect since January 1st. Other tax measures should be announced soon.

What is China’s outlook in the short term ?

The economic slowdown will continue at least in the first months of 2019.

Export growth prospects are uncertain as they depend on the trade deals Beijing and Washington might agree on. Any recovery in investment growth should be moderate. Meanwhile, private consumption is expected to rebound thanks to tax incentives.

In 2019 as a whole, real GDP growth is projected at 6.2%. This is a low point for China, which is a sign of deep structural change in its economy.

 

Go further:

China. Fiscal stimulus: the best option

View more videos Eco TV Week

On the Same Theme

Economic recovery is broadening 9/18/2020
China’s economic dynamics continued to improve in August 2020. As seen in our monthly Pulse, the expansion of the blue area compared to the dotted area shows a more widespread recovery in activity. Whereas the improvement since March was initially driven by the rebound in industrial production and investment in public infrastructure and real estate, it has now reached other parts of the economy [...]
China: investment recovery continues 9/2/2020
Activity indicators for July reflected the continued recovery of the Chinese economy. Real GDP growth already rebounded to 3.2% year-on-year in Q2 2020, up from a 6.8% contraction in Q1. The acceleration in investment growth since March has been driven mainly by public infrastructure projects, the construction and the real estate sectors, which have been supported by the government’s stimulus measures. Manufacturing investment has recovered more slowly, held back by the financial difficulties of corporates, particularly amongst SMEs. In the second half of 2020, investment in public infrastructure is set to remain strong, helped by continued expansionary fiscal policy. Monetary policy, by contrast, might become slightly more cautious, contributing to a slowdown in the recovery in the real estate sector. Lastly, investment in the manufacturing sector could strengthen slightly given the rebound in profits of industrial enterprises since May. Exports of manufactured goods have strengthened over the past two months, but their outlook remains clouded by the weakness of global demand and tensions between China and the US.
Real GDP is back to its pre-crisis level 7/24/2020
China’s economic dynamics continued to improve in June. In fact, real GDP rebounded by 11.5% quarter-on-quarter (-3.2% year-on-year), which was strong enough to completely regain the ground that was lost in Q1...
A gradual but uneven rebound 7/15/2020
The economy has been recovering gradually since March, and the rebound in real GDP should be strong enough to enable it to recover rapidly the ground lost in the first quarter. Yet the shock triggered by the pandemic and the ensuing lockdown measures has severely weakened some sectors (such as export-oriented industries), some corporates (notably micro-enterprises and SMEs) and some households (especially low-income earners). The central bank has cautiously eased credit conditions and the government has introduced a stimulus plan estimated at about 5 points of GDP for 2020. Public investment in infrastructure projects remains the instrument of choice, but direct support to corporates and households is also expected to boost private demand.    
The rebound in economic activity is clear, but will it continue? 6/19/2020
Our barometer shows an improvement in China’s economic momentum during the period between March and May 2020, compared to the preceding three months. This came as no surprise as economic activity collapsed in February, the first month of the lockdown, before beginning a very gradual recovery in March...
China, still weakened by the Covid-19 shock 5/22/2020
Economic activity contracted sharply in February, the first month of the lockdown, before rebounding very gradually in March and April. The recovery is bound to be very slow after this brutal first-quarter shock [...]
Is the worst over? 4/8/2020
China’s population and its economy were the first to be struck by the coronavirus epidemic. Activity contracted abruptly during the month of February before rebounding thereafter at a very gradual pace. Although the situation on the supply side is expected to return to normal in Q2, the demand shock will persist. Domestic investment and consumption will suffer from the effects of lost household and corporate revenues while world demand is falling. The authorities still have substantial resources to intervene to help restart the economy. Central government finances are not threatened. However, after the shock to GDP growth, the expected upsurge in domestic debt ratios will once again aggravate vulnerabilities in the financial sector.
China: economic contraction is expected in Q1 2020 3/18/2020
The most recent PMIs announced the shock earlier this month: industrial production fell strongly in January-February 2020, declining by 13.5% year-on-year. China also registered a very severe contraction in total exports (-18% y/y), fixed-asset investment (-24.5%) and volumes of retail sales (-23.7%). Such a collapse in economic activity is an unprecedented situation in China, which is expected to record a contraction in real GDP in Q1 2020. Activity has been recovering gradually in recent days, and a rebound in real GDP growth is expected in Q2 2020, notably supported by the authorities’ stimulus policy measures. However, the extent of the economic recovery is now likely to be constrained by the consequences of the sanitary and economic crisis currently spreading in Europe and the rest of the world.

ABOUT US Three teams of economists (OECD countries research, emerging economies and country risk, banking economics) make up BNP Paribas Economic Research Department.
This website presents their analyses.
The website contains 2505 articles and 646 videos