China has its work cut out for it bucking the trend towards
slower growth in 2020. With economic expansion hitting a nearly 30-year low of
6 per cent in the third quarter, China’s planners seem to have a daunting task ahead of them. Hopes may be rising for an
early end to the US-China trade war, but there is a long way to go on the road to recovery. World trade flows are slowing, global growth is suffering and China’s economy has felt the pinch.
Until the trade picture improves, there’s a lot Beijing can do to speed up domestic demand. Beijing has all the resources it needs for faster recovery, but just needs to tap into them with greater aplomb. More monetary and fiscal policy reflation is definitely on the cards in 2020.
It’s not just about rallying resources, but it’s a hearts and minds exercise too. Beijing must be more bullish about setting a positive lead for growth next year. Beijing could easily boost expectations by aiming for a wider 6 to 7 per cent 2020 growth target, higher than this year’s
6-6.5 per cent objective and more upbeat than the “
around 6 per cent” level currently being talked about for 2020.
An end to the US-China trade war and the risks of hard
Brexit receding in Europe will definitely help China in the months to come. But Beijing needs to “bend with the wind” and focus on consolidating a much more positive mindset for economic optimism ahead.
China’s leaders have already pledged to sustain economic growth in a reasonable range with “forward-looking, targeted and effective” policies. Clearly, this means putting in place more structural reforms and improving supply-side investments to strengthen the economy in the long run. In the interim, more countercyclical measures will be needed to give the economy an extra helping hand, but “talking up” growth could be an important ploy too.
The government has done a lot for the economy in recent years, through
cheaper credit, extra generous funding,
tax cuts and increased deficit spending, but more monetary and fiscal easing is required to turn the economy around. The downward trend in growth in inflation-adjusted M2, a broad measure of money supply, and government spending increases must be reversed to help “free up” China’s economic growth rate above 6 per cent over the next few years.
Beijing must cut domestic interest rates again and ease borrowing costs for consumers and business with lower bank
reserve requirement ratios. The monetary authorities must keep the economy fully funded with over-generous liquidity provisions, while the government needs to go overboard on new investment programmes to improve future growth potential. It is vital Beijing commits to these new initiatives early on to give as much encouragement as possible for consumers and enterprises in 2020.
While the external picture looks so uncertain, Beijing clearly has a lot of catching up to do on the home front, but better news should be due in the new year as the US-China trade war reaches a conclusion. With
dark clouds surrounding US President Donald Trump’s 2020 re-election hopes, the pressure is on to reach a quick fix with Beijing as Trump’s political fortunes implode.
A resolution of the trade war would be the missing link in China’s recovery prospects in 2020 as global confidence bounces back and world trade builds up a stronger head of steam.
Beijing’s de facto devaluation earlier this year of the renminbi, allowing it to sink
below the 7 yuan to US$1 level provided China’s exporters a vital lifeline as global trade conditions tumbled. But once political tensions ease and the global economic picture returns to normal, the renminbi will continue to strengthen as risk aversion and dollar safe haven plays go into reverse. The recent move back to below 7 yuan should be sustained.
2020 should be a year of golden opportunity for China but Beijing must go the extra mile to secure faster growth for the economy.
David Brown is chief executive of New View Economics
