Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

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