Trade war deal ‘raises hopes’ of China’s economy reaching 6 per cent growth in 2020

Trade war deal ‘raises hopes’ of China’s economy reaching 6 per cent growth in 2020

Economists expect the country to reach its psychologically important target next year

A trade war truce between the China and United States has eased concerns in Beijing about prospects next year of reaching a growth target that policymakers see as crucial for employment and social stability.

Four economists from China’s leading think tanks and close to policymakers agreed that the world’s second-largest economy would grow at around 6 per cent in 2020, saying that they expected a phase one deal with Washington to help boost investor confidence and bolster trade.

Cautiously optimistic about the 2020 outlook, the economists forecast China would invest more in technology and open its market up further to improve competitiveness, adding that the trade war truce was unlikely to remove the risk of accusations of protectionism and technological confrontation down the road.

The remarks at a seminar in Beijing on Thursday from the researchers at the Chinese Academy of Social Sciences (CASS), Tsinghua University and think tanks affiliated with the Ministry of Finance and the State Council shed light on the thinking of the top leadership on prospects for 2020 after the announcement of the phase one deal two weeks ago.

“Uncertainty is declining with the China-US breakthrough,” Liu Shangxi, head of the ministry’s Chinese Academy of Fiscal Sciences, said.

“If the phase one deal is signed, private investors will be more confident and investment will bottom out. Next year will be no worse than this year, and the GDP growth could be around 6 per cent or a little bit higher.”

China’s growth slumped to 6 per cent in the third quarter of 2019,its slowest pace in nearly three decades. A number of private sector analysts are still sceptical about the outlook although several investment banks raised their economic growth forecast to 6 per cent for 2020 after the phase one announcement.

The US agreed to suspend the threatened December 15 tariffs and to halve tariffs of 15 per cent on US$120 billion of imports from China imposed in September.

The details of the agreement are yet to be finalised, with the deal requiring structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange.

Zhang Yuyan, head of CASS’s Institute of World Economics and Politics, said that while it was hard to measure the impact of the trade war, the effects of the US tariffs had weakened as the world adapted to them.

Bai Chongen, a Tsinghua University economist and a former monetary policy adviser to the central bank, said: “With the finalising of the phase one deal, China’s imports and exports are likely to stabilise and investment growth will not be slower than this year with improved corporate confidence.”

Zhao Jinping, researcher with the State Council’s Development Research Centre, said the global economy had paid a heavy price for protectionism and downward pressure was evident in China’s economy this year.

However, the good thing was that the trade war had made the Chinese government determined to open up wider and focus on innovation, he said.

While China is set to open up its financial sector, the trade war forced China to promise to allow sole ownership by foreign investors in banks, securities and other financial institutions ahead of schedule, according to Zhao.

“Foreign financial institutions are keen to expand in the China market, while China hopes the opening up can help internationalise domestic players and bring them up to international standards,” he said.

“Amid a technological confrontation with the US, China has no other solution but to open up its market and cooperate with other global players.”

CASS’s Zhang said it appeared that the US did not want to have China as a rival at the high end of the global value chain.

“The Chinese government and technology companies have realised the importance of innovation and they will definitely commit more resources to it. Otherwise, they know they won’t be able to survive in the world market,” he said.

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