Under negative impact from the ongoing trade frictions with the United States, China's economic growth is likely to continue to be under heavy downturn pressure as the government is hesitant to introduce massive economic stimulus packages out of debt concerns, experts told Sputnik
MOSCOW (Pakistan Point News / Sputnik - 18th October, 2019) Under negative impact from the ongoing trade frictions with the United States, China's economic growth is likely to continue to be under heavy downturn pressure as the government is hesitant to introduce massive economic stimulus packages out of debt concerns, experts told Sputnik.China's economy expanded 6.0 percent year-on-year in the third quarter, the slowest pace of quarterly growth since 1992, the National Bureau of Statistics (NBS) announced on Friday.
During China's top trade negotiator Vice Premier Liu He's visit to Washington last week, US President Donald Trump announced that both sides had reached a "substantial phase one deal," which could be finalized in writing when he meets with Chinese President Xi Jinping at the upcoming APEC summit in Chile next month.
Despite Trump agreeing to suspend scheduled tariffs hike on $200 billion worth of Chinese goods as a sign of good will, he didn't make a final decision on whether to implement the proposed additional tariffs on the remaining $300 billion worth of Chinese goods by December 15, which would mean all of China's annual exports to the United States would be subject to steep tariffs when entering the US market.
As the Chinese economy began to feel the pain of negative impact from the bilateral trade dispute, the country's policymakers may not want to use massive government-led economic stimulus packages to offset the damages caused by steep US tariffs, Chinese economists told Sputnik.
"It's very clear that Chinese authorities don't want to even mention the phrase 'stimulus' anymore. We call it 'anti-cyclical adjustment' instead. In a sense, it's still a kind of economic stimulus. But the issue is the government has been stressing in recent years to avoid introducing massive stimulus measures. That's why we even don't want to mention 'stimulus' anymore," Zhang Jun, the director of the China Center for Economic Studies at Fudan University in Shanghai, told Sputnik.
The expert explained that the Chinese government had limited options left even if it wanted to introduce new economic stimulus measures.
"When the government introduced the 4 trillion yuan (about $564.5 billion) stimulus package [during the 2008 global financial crisis], most of the investments went into infrastructure construction and the property market. Today, stimulus into the property market has become a prohibited area, after president Xi said speculations in the property market must stop. The only option left is to invest in infrastructure construction. But infrastructure projects have been rather saturated in China. As many cities have been building infrastructures like subways, high-speed rails and new high ways for many years, there's very little room to add new projects," he said.
Other economists argued that new infrastructures, once completed, could still drive economic growth in China.
"In the past, we always doubted whether an extra railway is needed or whether there would be transporters on that new rail line. But it turned out that the rail line could be full quite quickly. Therefore, people are moving around the country and high-speed rail is a popular way of transportation in China. I believe we still have not reached the full capacity yet, in terms of infrastructure in China," Iris Pang, Greater China economist at ING Bank NV, told Sputnik.
In response to the 2008 global financial crisis, Chinese authorities unveiled an astronomical economic stimulus package valued at 4 trillion yuan, which mostly went into infrastructure projects, such as the construction of new high-speed rails, highways and airports.
Professor Zhang pointed out that lessons from previous heavy fiscal stimulus had made Chinese authorities prudent when it comes to using similar tactics again.
"When introducing new projects, you need to evaluate whether they are needed. And you also have to figure out whether those projects can benefit economic growth in the future. You need to make sure that the projects you invest in today won't become debt burdens in the future. I believe local governments of various levels would not want to get involved in projects only for the purpose of driving GDP growth but would turn into debt burdens in the future," he said.
To combat excessive debt levels of local governments caused by the massive stimulus packages from 2008, Chinese authorities began a process known as "deleveraging" in 2016 to help local governments ease their debt burdens. Such "deleveraging" efforts have been abandoned after negative impacts from the trade war began to hurt domestic economic growth in China.
The ongoing trade tensions and global market conditions drove China's foreign trade into decline in September. Compared to the same period last year, the country's exports dropped by 0.7 percent and its imports fell by 6.2 percent in September.
But the nation's industrial production bounced back to 5.8 percent year-on-year growth in September, following sluggish growth levels of 4.8 percent and 4.4 percent in July and August, respectively.
Pang from ING Bank NV suggested that the expansion in industrial production showed government-led investments could still help stabilize economic growth.
"If you look at industrial production in September, it's actually very good. But those are not really private sector driven growth. Almost all of them are infrastructure projects driven growth. We actually see a mixed bag of trade war damages and fiscal stimulus at the same time. Because of the damages from the trade war, the Chinese government has to get all the infrastructure projects in place. Otherwise, it will not pile up debts so fast that it's not really healthy for the economy,"
The economist pointed out that infrastructure projects related to China's plan to roll out the nationwide 5G networks could help drive economic growth in the country in the near future.
"From the fourth quarter [of 2019] to 2021, we expect that 5G infrastructure construction and related production, consumption and services will come in play. Even though China may not get as much 5G exports as expected, domestic 5G development alone could support some [economic] growth in China. That's why economic growth in the fourth quarter should not be worse than that in the third quarter," she said.
However, Professor Zhang from Fudan University warned that 5G development could take a long time and would unlikely be enough to drive economic growth in the short term.
Nevertheless, both economists expect China to meet its annual GDP growth target of 6.0-6.5 percent in 2019, with Pang predicting 6.15 percent growth for the whole year.
