publication December 19, 2019

China Economic Update - December 2019

Latest Issue: 
  • December 2019

Key messages

  • China’s economy is slowing, reflecting both cyclical factors and longer-term structural trends.
  • Growth is estimated to decelerate to 6.1 percent in 2019, amid cooling domestic and external demand, and other external factors. A more accommodative policy stance has helped to mitigate some of these effects.
  • Growth is projected to moderate further to 5.9 percent in 2020, and 5.8 percent in 2021, reflecting the deeper structural trends—declining returns to public investment, growing debt and rapid aging.
  • Notwithstanding the recent conclusion of the phase one agreement between China and the United States, short-term risks remain tilted to the downside amid a fragile global outlook and the lingering impact of trade tensions.
  • Domestically, growth may suffer from the potential adverse effects of financial de-risking, given its asymmetric impact on private sector financing and the risk of a disorderly unwinding of excessive leverage.
  • The key medium-term priority is to achieve the rebalancing from a credit-fueled and investment-led economy towards one which relies more on domestic consumption, services, private-investment, productivity, and green growth.
  • This would require addressing various distortions to allow market to play a more decisive role in allocating resources and mainstreaming environmental sustainability into China’s medium-term development strategy.
  • Implementation of these priorities would boost China’s long-term growth prospects.
  • It would also help China move toward a more comprehensive and lasting resolution of remaining deep-seated disagreements on global trade and investment, and public goods agenda.