China in response to its economic slowdown

La Chine face à son ralentissement économique

Photo: Agence France-Presse
Workers make socks at a factory in Huaibei, in Anhui province.

The chinese economy may be in lack of structural reforms, signs of shortness of breath could well push the government to put some brackets in favour of increased support to the activity.

“When it is necessary to choose between reforms and growth, we expect that priority is more given to supporting growth,” said Fang, Gene, ” the agency Moody s.

Slowdown of the manufacturing activity, retail sales… : multiple signals indicate a loss of steam in the machine of the chinese economy, which should nevertheless reach its growth target of 6.5% to 2018, according to analysts.

Still, ” the chinese economy is in trouble, the bazaar of the debt is not resolved, and the impact of u.s. tariff is hardly felt. There are obvious risks, ” says china expert Bill Bishop.

But be careful not to be “too pessimistic for 2019” : “The communist Party will do all it can to revitalize the economy “, and the official messages ” seem to confirm that multiple forms of stimulation are to come “.

Y aura-t-il or not major reforms ? “It remains the question to 1000 billion dollars “, he adds.

The China inside and outside

On the domestic front, after an average growth of 9.7 % per year between 1978 and 2015, the asian giant is struggling with a number of structural factors : the aging of the population, diminishing of the reservoir of rural workers, over-capacity, pollution, debt, weight of State-owned enterprises.

But in the face of the global slowdown, the reform of these enterprises, which are often not cost-effective and overstaffing, could pass to the second plan in the name of preserving jobs.

Outside, the power market faces a slowdown in developed countries and the tension of trade with Washington.

Lack of breakthrough in the ongoing negotiations, the conflict “will likely weigh on growth in china and more widely in Asia-Pacific by a slowdown in chinese demand,” says the firm Oxford Economics.

On Wednesday, Apple explained that these uncertainties trade, on bottom of slowdown in economic activity, had already affected the chinese consumers, the us giant announcing a forecast of quarterly revenue in decline, which shook the markets.

For Raymond Deng, DBS Bank, ” the most pressing challenge for China is to improve its technological level “. But ” the reform of supply is the key policy to boost the economy “.

The government will also need to ” elevate the consumer “, ” inject enough money into the economy “, “eliminating public enterprises “stale”…

China in the short and long terms

There will be two fundamental factors in 2019 : “the plan of reduction of taxes and the trade dispute us-chinese,” said Zhu Chaoping, a strategist for JPMorgan Asset Management.

Because China is suffering from its debt, has not embarked on a large stimulus plan blows a massive investment as she had done to get out of the financial crisis of 2008. But it has loosened the stranglehold on the budget last year.

Some sectors have been entitled to a reduction of one point of the value-added tax and taxpayers will benefit this year from tax deductions (education, health care for serious illness, loan repayments real estate…), while the tax threshold has been raised.

“If the plan of tax cuts is well applied, it can not only boost the profits of firms and household consumption, but also, in the long term, improve the economic structure,” says Mr Zhu.

For the professor of economics Su Jian, of Peking University, support for consumption requires a rise and a “better distribution” of income of households, as well as social support increased (health, education) to reduce precautionary savings.

He also points out that the GDP per capita of China is only about one-eighth that of the United States. “The margin development is still a great […], the GDP can still grow by 7 % for 20 years,” he says.

For many economists, who expect 6 % growth in 2019, the production of wealth could, however, continue to falter.

Zhu Chaoping refers to ” a rise in GDP of around 5 % in the next 10 to 15 years, with a decline of 0.1 or 0.2 of a percentage point per year.”

For Capital Economics, ” given the trajectories of current, the rate of growth would decline even up to 2 % by 2030.

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