-
Advertisement
Macroscope
Opinion
Aidan Yao
Aidan Yao

Macroscope | For China, the worst of the trade war is yet to come – economic growth will decelerate in 2019

  • Aidan Yao says it is unlikely that talks between Trump and Xi will resolve the trade war, so investors should think twice before buying into rallies
  • With China’s ability to stimulate the economy hampered by the desire not to reverse reforms, growth may slow to 6.1 per cent in 2019

Reading Time:3 minutes
Why you can trust SCMP
A woman yawns at a factory making swimsuits in Jinjiang in southeast China’s Fujian province in August. In recent months, Chinese exporters accelerated production and shipment to avoid the upcoming tariff increases. Photo: AP
Aidan Yao
It has been a challenging year for the Chinese economy and markets. What got off to a positive start, following the strong momentum of 2017, quickly gave way to a rapid deterioration of economic fundamentals and investor sentiment. A sudden turn for the worse in US-China trade relations dealt a heavy blow to Chinese equities and the currency.
In addition, domestic policies, particularly those centred on deleveraging and shadow-banking controls, have also contributed to the negative sentiment by pulling down domestic demand. While macro policies have now been adjusted, they will be inadequate to reverse the negative growth trend in the near term. Hence, the economy is likely to end 2018 at 6.5 to 6.6 per cent growth, the lowest since the global financial crisis.
While 2018 has been challenging, 2019 is not about to get any easier. Externally, the US-China trade war has not yet affected the real economy, due to export front-loading ahead of the implementation of tariffs. These “pre-emptive” purchases, however, will not last forever and the real shock of the trade war is expected to hit home from early 2019.
Advertisement

The baseline case is that a 25 per cent tariff on US$250 billion of goods sold to the US will lower Chinese gross domestic product growth by 0.9 percentage points after accounting for the direct (trade) and indirect (investment and consumption) impacts. If Trump were to initiate a full-scale trade war that imposes duties on all Chinese products, the growth shock would increase to 1.5 per cent of GDP.

However, recent news on the trade front has not been all bad.

Watch: Trump and Xi agree to try and resolve their differences

Advertisement
Select Voice
Choose your listening speed
Get through articles 2x faster
1.25x
250 WPM
Slow
Average
Fast
1.25x