Hit hard by the trade war, China's economic outlook is uncertain - except for one thing: growth is sure to decline


China has moved far from its Mao-era command economy, following four decades of market-oriented reform. But in the Communist Party-led state capitalist system, state planning - a remnant of Stalinist economics - continues to play a critical role.


China has annual, five- and 10-year economic programmes, which, in addition to being forward-looking economic plans, are used to measure the government's performance. Faced with an uncertain economic landscape, China's planners are preparing for a rockier 2020.

The rate of the country's economic growth has been slowing in the past decade, a trend that accelerated after the trade war with the US gathered steam last year. The economy grew at 6.8 per cent, 6.7 per cent, 6.5 per cent and 6.4 per cent in each quarter of 2018, an average quarterly deceleration in growth of 0.1 percentage point.


But the biggest uncertainty for the world's largest exporter of goods is its continuing trade war with the US, despite the possibility of a partial deal being signed.

The damage done by the trade war will outlast any interim deal as punitive tariffs have already raised costs for businesses, increased prices for consumers, uprooted global supply chains and created crippling uncertainty for companies, delaying investment and hiring.

The trade war has gone well beyond what many had anticipated, to cover technology, finance, currency and other aspects of the economy. The trade tensions are likely to persist in the foreseeable future because of the world's largest economies' disagreement on fundamental principles.

The trade war will become more politicised and intense as the US moves closer to its presidential election next year, whether Trump is re-elected or not. That is why some economists have also become uncertain about the outlook for China, with their forecasts for China's growth in 2020 exhibiting rarely seen flexibility.

For instance, UBS forecasts 5.8 to 6.3 per cent growth in the best case if all tariffs are removed, and 5.1 per cent as the worst case if Trump further hikes tariffs.


For years, China's economic planners set a specific target rate for economic growth. They only changed the method last year, setting a target range for growth of "between 6 and 6.5 per cent" for 2019.

China's planners might target a growth rate of "around 6 per cent" for 2020 to avoid the politically embarrassing below 6 per cent benchmark, despite almost all international institutions forecasting the growth rate plunging below that figure.

Beijing could also set a safer rate of "between 5.5 and 6 per cent", though the result is likely to approach the low end of their forecast.

China's slowdown is likely to continue as it faces sluggish demand, rising debt and inflation, resource depletion and a rapidly ageing population. But a full-blown trade war would shake the foundations that have sustained the country's four-decade boom, one based on free trade and economic globalisation.

Cary Huang is a veteran China affairs columnist, having written on this topic since the early 1990s

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