Concerning the Chinese economy in 2018, the annual economic growth rate could well reach 6.5%, and the GDP could reach RMB 90 trillion. In the growth trend, the economic growth rate had dropped significantly, and the downward pressure on the economy had increased significantly. Among the causes of China's economic difficulties, the deterioration of the external economic and trade environment represented by the U.S.-China trade war would be the most important variable, yet the real season is the China's internal economic problems.
Regarding Chinese economic trend in 2019, Anbound's macro research team has previously given a pre-judgment that economic growth will continue to decline, and the pressure for economic stability will increase. In this new year, China will need to strive to maintain 6% economic growth. It is worth noting that if the decline of the economic growth rate is too fast, many potential risks in China will be highlighted, this is especially true when the difficulty in the development of industries is intensified and consumption continues to be sluggish, the domestic unemployment problem may pose an unprecedented challenge.
Facing such unprecedentedly severe situation, the Chinese decision-making level has already had enough understanding and is thinking about how to adjust and respond to it. Dynamically, the real operation of the Chinese economy is the combined result of the economic environment and policy response. If the Chinese government is ready to start responding proactively, there will be corresponding policies to be introduced in 2019. On January 4th, the central bank's comprehensive RRR cut policy was the first macro policy adjustment this year, setting the tone for relaxation for this year's macro policy.
For such macro-trend issues, the Anbound's research team routinely analyzes and discusses the situation based on the latest information tracking to analyze the result. Anbound's chief researcher Chan Kung provides his views:
With the introduction of macroeconomic policies, if it is without any incident the Chinese economy will show the economic growth situation to be low at the beginning and the end but high in the middle for the year 2019. Chan Kung further pointed out that if the situation further declines, large-scale stimulus measures will be launched at the beginning of this year, with the aim of pushing up the economic growth rate and creating conditions and atmosphere for the 70th anniversary of the founding of the People's Republic of China in October. Specifically, in the first quarter of this year, China may reduce and cut interest rates. At the same time, there will be financial support policies in the country. In addition, there will be further financial openness policies in the country, which may be more active than in the past. In general, relevant policies might be introduced in the period from the first quarter of this year to the beginning of the second quarter. Thereafter, in the second half of the 2019 and the last quarter, economic growth could begin to decline. However, China's economic growth rate should not reach 5%. If it falls to this economic growth rate, in two years the Chinese economic order will become chaotic. Therefore, at the end of 2019, depending on economic growth, China might come out with regulatory measures.
2019 is not only a crucial year for the "13th Five-Year Plan", but also a key year for the "14th Five-Year Plan". In addition, this is the second year in which the U.S.-initiated trade war has intensified China's economic slowdown. Although the Chinese central government has elaborated on this year's macroeconomic policies, it is necessary to have objective judgments on the medium and long-term strategic environment, as there are great changes have been happening both in China and in the international situations, to further explain what the Chinese President Xi Jinping called "major changes unseen in a century" and link to specific policies. Based on some of the relevant works of Anbound's research team and the grasp of the Chinese and international situation in the ongoing research, we tend to believe that the Chinese decision-making level's future direction of economic policy, especially the definition of the future strategic environment, still does not have a well-determined conclusion. Focusing on the future and grasping the changes in the strategic situation objectively to proactively define the strategic environment, all these are important in forming strategic judgments.
Facing the changes in the strategic environment, grasping the key risks and challenges in the country will be vital for rational response and control. Chan Kung further pointed out that China's biggest problem and challenge this year onwards would be the adjustments and changes of some major strategic policies, such as the so-called "guo jin min tui"(state advances, private sector retreats), the opening of the financial industry, the aging population of the country, the direction of reform of state-owned enterprises, and others. If these issues have not changed, there will be no fundamental changes.
Anbound chief researcher Chan Kung said four major problems in front of the Chinese economy: (1) Rapid urbanization and land-economy dependence caused by real estate, which in turn results in environmental pollution; (2) Industries, especially manufacturing sectors. (3) High cost and overcapacity; (3) Debt risk and financial management issues; (4) Population aging, social stability and security issues. The most critical one is at the level of development environment.
Resolving these interrelated and systematical problems would be rather tricky. Chan Kung emphasizes that it is necessary to prepare for the negative situation on the policy side. A very likely result is that China's urbanization rate is very high, but the cost of a wide range of social sectors is also rapidly high. There are many issues that China will have to face; the population is concentrated, but the aging is also serious. Then, there are also the "Three Rural Issues", which refers to three issues relating to rural development in Mainland China; these three issues are agriculture, rural areas, and farmers. Meanwhile, China also faces problems in the manufacturing industry, where low-income jobs are unattractive. In addition, house prices are rising, social marginal groups are beginning to concentrate. Capital and currency have increased, yet currency flows have begun to fluctuate volatilely. Divestment and expatriation have worsened, the local currency has begun to depreciate. The lists of the problems also include rapid expansion of debts, overcapacity, the disparity between the rich and the poor, and the declining economic growth rate.
Final analysis conclusion:
2019 is a crucial year for China's economic development. It is necessary to solve some urgent short-term problems, and take into account future changes and transitions in the medium and long term. Facing the dramatic changes in the domestic and international situation, accurately grasping the changes in the strategic environment and forming accurate strategic judgments are vital to the future policies of China.
