Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Risk/Reward in Silver Favors Buying Now, Not Waiting for Big Moves - 23rd Mar 19
Similarities Between Stock Market Today and Previous Bull Market Tops - 23rd Mar 19
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

China - A Critical Global Growth Engine, Despite Deceleration

Economics / China Economy Mar 05, 2019 - 05:09 PM GMT

By: Dan_Steinbock

Economics Despite U.S. trade wars, China will stick to its growth target and fiscal easing in the short-term, deleveraging in the medium-term and rebalancing in the long-term. That’s the message of Premier Li’s report.

Released on Monday at the annual session of the National People’s Congress (NPC), Premier Li Keqian’s annual work report sets the general tone for the 2019 economic policies.

In 2019, China has set a lower, flexible economic growth target at the range of 6.0% to 6.5%, while raising its tolerance of fiscal deficit at 2.8% of GDP.

The point about the GDP growth target is not how much it will exceed 6%, but that it should not fall below that level. That’s vital to sustain the quest to double living standard by 2020.


Tax cuts, 11 million new urban jobs

China is focused on raising per capita incomes, eradicating remaining poverty and battling climate change. Beijing is planning to cut $300 billion in taxes and corporate pension payments, especially to ease the burden on small-and- medium size (SME) enterprises.

The idea is also to cut the value-added tax rate that covers the manufacturing sector by 3 percentage points.

In this policy mix, the focus is on cutting banks’ reserve requirement ratios, instead of lowering interest rates, and guiding liquidity into SMEs. That supports the aim to create over 11 million new urban jobs.

Still, skeptical observers note that the purchasing managers index (PMI) came in at 49.2 in February representing the worst performance in three years. But the PMI data should be seen in historical context. A decade ago, when Chinese growth still relied mainly on manufacturing exports, PMI data reflected economic realities directly. As China is rebalancing away from manufacturing exports, PMI offers a less accurate picture of the full economy.

Indeed, the new Caixin PMI - which focuses on light industry, as opposed to the official survey’s focus on heavy industry - posted a sharp rebound in February, rising to 49.9 from 48.3 in January.

Foreign investment legislation and IPRs

In addition to Chinese growth, international observers are focusing on foreign direct investment (FDI) legislation and intellectual property rights (IPRs), largely due to U.S. trade wars.

In January, China’s exports rose 9.1% on year-to-year basis, up from -4.4% in December. China’s trade surplus with the U.S. remained high at $27.3 billion, due to sharp fall of imports and modest decline of exports. Unsurprisingly, the White House's punitive tariffs on Chinese exports have not resolved the issue of U.S. trade deficit. Bilateral tariffs against China simply cannot surpass these deficits that are multilateral and began already in the early 1970s.

When the U.S. and China began talks amid hopes for an agreement that would head off President Trump’s planned March 2 tariff increase on $200 billion in Chinese goods, China was already pushing plans to introduce a new foreign investment law. By mid-March, it is widely expected to replace three existing regulations and to increase IPR protection, while limiting technology transfer.

Yet, even a partial deal is unlikely to mitigate all broader tensions between the two nations on technology and industrial policy, as evidenced by the highly controversial extradition process of Huawei CFO Meng Wanzhou.

Instead of fair commercial competition - whether in 5G deployment or other areas - Washington is increasingly relying on contentious “national security concerns” to impair rival companies in China, Europe and elsewhere.

Turning financial tides

Recently, Chinese economic cooling has eased, thanks to early issuances of local governments’ special-purpose bonds and targeted adjustments to monetary policy, and increased infrastructure investment. In 2019, China plans to issue $320 billion of special local government bonds.

Since 2015, President Xi Jinping has promoted the idea of the supply-side reform to achieve greater policy focus on reducing industrial overcapacity and deleveraging the corporate sector. As the scope of supply-side reforms has now been broadened to include the financial sector, bank regulators are offering more diversified financial services, strengthening the monetary transmission channels and improving the efficiency of financial resources.

In 2019, China’s sovereign commercial debt could climb to $2.4 trillion, while local and regional government borrowing is expected to amount to $770 billion, according to Standard & Poor’s. But let’s put it in the context. In 2019 sovereign commercial debt will rise to $16.5 trillion in the U.S. and to $10 trillion in Japan.

Moreover, financial tides may be turning. Surging fund inflows indicate a rebound in sentiment for Chinese equities. While the market registered sharp inflows in 2018, nearly reversing prior years’ outflows, the Fed’s tightening seems to be peaking out.

Additionally, MSCI Inc. will quadruple the weight of Chinese stocks in its global benchmarks to 20%, which could translate to $80 billion of foreign inflows to China. Recently, China’s blue-chip CSI300 Index surged its best week since fall 2015. And the Shanghai Stock Exchange is in the final stages of launching a highly-anticipated Nasdaq-style high-tech board, which will serve as a financial incubator for innovative technology firms.

The valuation of Chinese market, as measured by CAPE (cyclically-adjusted price-to-earnings ratio) is still relatively low at 15, whereas the U.S. figure, despite recent losses, remains almost 31; twice its historical average. In financial markets, China has huge structural potential to expand, whereas the U.S. is hovering too close to a secular edge.

Gaining global approval

Despite deceleration, the size of Chinese economy has tripled in just a decade. Last year alone, China’s added GDP is equal to the value of Australia’s total output. As China’s contribution to the world GDP growth will continue to exceed 30%, it supports global economic prospects.

Chinese leadership’s commitment to more inclusive globalization remains strong, as President Xi Jinping affirmed in last December’s anniversary of reforms and opening-up policies.

China’s innovation is prominently displayed by world-class productivity in the Greater Bay Area of South China, and international cooperation by the One Road One Belt initiative that’s fueling 21st century globalization.

According to Gallup’s new Rating World Leaders, U.S. leadership approval ratings have plunged, while China's leadership is gaining more clout.

Irrespective of Washington’s trade wars, Chinese reforms will prevail.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

© 2019 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Dan Steinbock Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules