The world’s second largest economy growth could slow down. The China main figures are giving the strongest signal since 2015, that growth in their economy won’t be as great as it has been expected. They are prepared to depress policy if risk or financial risks threaten a sharp deceleration.
Hard work is needed to meet this year’s economic targets amid an increasingly complicated geopolitical situation, according to a statement released by state media Monday following a Politburo meeting led by President Xi Jinping. Though growth remained robust in the first quarter, forecasters still see the economy slowing this year as trade tensions with the U.S. and the campaign to clean up the financial sector remain as downside factors. As the Politburo statement mentioned the need to boost domestic demand for the first time since 2015, and dropped a reference to deleveraging, investors are interpreting the change in tone as a signal that the government may ease off tightening measures if warranted. Stocks in Shanghai rallied the most in two months Tuesday, according to Bloomberg.com
“There’s a deep sense of risk underlying the calm surface, and the leadership’s attitude has changed greatly,” Deng Haiqing, chief economist at JZ Securities Co. in Beijing, wrote in a note. “The attention attached to stabilizing economic growth is the greatest since 2015.”
“Against the backdrop of uncertain trade and investment tension with the U.S., the Chinese government has realized the difficulty of reaching the predetermined growth target,” said Xu Jianwei, a senior greater China economist at Natixis SA in Hong Kong. “This is a significant, rather than slight, change of tone.”
Economists surveyed by Bloomberg forecast growth will slow this year to about 6.5 percent, the same as the government’s target, and then continue decelerating for the next two years. The expansion picked up in 2017 for the first time in seven years, quickening to 6.9 percent.
It’s still too early to read official concern as a clear indication of the direction of policy, according to Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong.
“I wouldn’t read it as a signal of stimulus,” Hu said. “The phrase ‘boosting domestic demand’ is a response to the latest U.S.-China trade dispute. China might concede this time but such a trade dispute could be the new normal in the future.”