Premier Li Keqiang has called for 20/20 vision in spotting danger signs to China’s economy in 2020. Speaking in Beijing to senior government officials from across the country, he reiterated the threat of “downward pressure” next year and cautioned vigilance.
During the past four months, Li has warned of the risks ahead as the world’s second-largest economy slows and he picked up the theme again last week.
“Next year, our country’s economy could face greater downward pressure,” Li said as reported by the influential State Council. “[We] will face a more complex situation, and governments at every level will have more difficult tasks, and greater responsibilities.”
Dealing with the fallout and retaining sustainable growth will be top of the agenda in the 34 provincial-level government departments.
“General office [officials] … must always remember that their overall goal and guiding philosophy is to serve the people,” Li said. [You must] push forward the implementation of reform measures, enhance department coordination, and exert all efforts to build service-oriented government institutions.”
Overall, this has been a depressing year for China’s economy which has been buffeted by the trade war with the United States.
So far, signs of stress have appeared in consumer spending, factory production, investment and tumbling exports. The shock waves have even stifled global growth, a report by the United Nations highlighted.
Yet a significant part of the reason behind the downturn has been the decision by President Xi Jinping’s government to realign the state-backed economic model to high-tech manufacturing and services. Consumption, not cheap low-value exports, will be pivotal to Beijing’s blueprint.
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Last month, consumer inflation jumped to a seven-year high as pork prices soared amid an outbreak of African Swine Fever, which has decimated the country’s hog herd.
To complete a depressing picture, GDP growth in the third quarter dipped to 6%, the slowest rate in nearly three decades.
In the years ahead, it could be close to 4% or 5%. At least there was slightly better news earlier this month.
The National Bureau of Statistics reported in December that industrial production increased by 6.2% in November compared to the same period in 2018, hitting levels not seen for six months.
Retail sales also surged by 8% compared to October’s number of 7.2%. But that data was probably buoyed by record spending during Alibaba’s annual “Singles’ Day” buying spree.
“Activity and spending indicators strengthened across the board, though we think this uptick will prove short-lived,” Martin Lynge Rasmussen, the China economist at Capital Economics, said.
“Admittedly, the phase-one US-China trade deal could boost both export activity and corporate investment in the near term. But real estate, a key prop to growth in recent quarters, is primed for moderation as financing to the sector is being squeezed by a regulatory crackdown,” he added.
How much impact the phase one trade agreement will have on the economy is open to debate.
But Beijing is proactively easing tariffs on a range of goods, including food products, consumer items and components for manufacturing smart-phones, in a move to boost domestic demand.
“The changes [on more than 850 items will optimize] the trade structure and promote the high-quality development of the economy,” the State Council announced in a statement earlier this week, adding that the new duties would come into effect on January 1.
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Still, lingering concerns persist about future trade relations between Washington and Beijing. What is believed to be a limited accord will pave the way for a phase two deal, which will probably take in China’s controversial state-run model.
Finding a solution to that conundrum will be difficult to achieve.
Da Wei, of the University of International Relations and a director of the Center for International Strategy and Security Studies, made it clear what is at stake between the world’s two largest economies.
“Because we are living in an interconnected world, a handful of pushbacks by the US will not reverse China’s peaceful rise. But the development of China-US relations in the past two years has diminished my optimism,” he said on the China-US Focus website for academics.
“I am less sure when I see [the] bashing of Huawei and other Chinese high-tech companies, on scanty evidence, if any. Most people in China are more realistic than I am. There is an emerging mainstream view that the US has a crystal clear goal – to keep China down,” he continued.
“Having heard and seen so much negative rhetoric and action from the US toward China, it is hard for Chinese experts on the US to convince Chinese people that this is not a long-term strategic goal,” he added.
In the meantime, Premier Li will concentrate the minds of government officials on his 20/20 economic vision in 2020.