20181217-兴业研究-Outlook_for_China_s_Economy_in_2019__Seeking_the_Balance_between_Growth_and_Deleveraging_50页_3mb

Summary of "Seeking the Balance between Growth and Deleveraging: Outlook for China's Economy in 2019"

Core Content

China's economy is expected to experience a moderately slower growth pace in 2019 due to persistent external headwinds. The government will prioritize expanding domestic demand, while maintaining a balance between economic growth and deleveraging. The key challenges will involve managing the tradeoff between regulatory tightening and growth, particularly in the context of trade tensions and the need to control local government debt.

Main Points

1. Economic Growth and Domestic Demand

• Growth Expectations: China's GDP growth is expected to remain around 6.4% for 2019, with a moderate slowdown compared to 2018.
• Domestic Demand Drivers: Auto sales are expected to recover, and property investment in tier-1 cities may rebound. However, property investment in tier-3 and tier-4 cities will face downward pressure due to scaling back of monetized resettlement.
• Infrastructure Investment: It is likely to see a modest rebound as a cushion for economic slowdown, but constrained by debt limits and capital shortages.

2. Inflation and Monetary Policy

• CPI and PPI Projections: CPI is expected to grow at around 2.6% y/y, while PPI is projected to decline to 1.7% y/y in 2019.
• Monetary Policy: The Chinese government will maintain a neutral and prudent monetary stance. Potential measures include RRR cuts, targeted interest rate reductions, and increased exchange rate volatility.
• Credit Expansion: Credit growth is expected to remain stable, with a modest rebound in M2 and TSF growth rates.

3. Trade Tensions and Exports

• Export Challenges: Trade frictions and a slowdown in global demand will put a drag on China's exports in 2019. Export growth is expected to slow, with the magnitude depending on U.S.-China trade relations.
• Impact of Tariffs: The additional 10% tariffs on USD200 billion of Chinese exports have weakened the competitiveness of Chinese goods, but a weaker yuan real effective exchange rate (REER) may help offset some of this.
• Export Diversification: Exports to Hong Kong and Taiwan have increased, indicating a shift in trade strategy to re-export hubs.

4. Imports and Consumer Trends

• Import Growth: Imports are expected to slow down due to reduced manufacturing investment and domestic demand, but they may still show some resilience.
• Consumer Goods Imports: These have increased significantly due to tariff cuts and consumption upgrades. Food, medicine, and home appliances are major categories.
• Consumer Spending: Consumer spending is likely to slow, but the proportion of consumer goods in total imports remains low compared to global averages.

5. Property Market Dynamics

• Property Cycle: China's property market has gone through three cycles since 2006, each lasting three years. It is currently in the late stage of the cycle.
• Tier-1 vs. Tier-3/Tier-4 Cities: Property investment in tier-1 cities is expected to grow faster, while tier-3 and tier-4 cities may see a slowdown due to reduced monetized resettlement and lower property sales.
• Deleveraging Impact: The government's focus on reducing household and corporate leverage, particularly in SOEs, will likely slow down property investment.

6. Manufacturing Investment

• Peak and Decline: Manufacturing investment is expected to peak in early 2019 and then decline, driven by reduced corporate profitability and weak global demand.
• Capacity Utilization: There is a correlation between manufacturing investment and capacity utilization, indicating that the peak may occur in the fourth quarter of 2018 or first quarter of 2019.
• Sectoral Trends: Cyclical industries and hi-tech sectors have seen increased profitability, which has supported investment growth.

Key Information

• Property Investment: Expected to grow faster in tier-1 cities, but slow in tier-2 and tier-3/tier-4 cities due to regulatory changes and reduced monetized resettlement.
• Export Growth: Likely to slow in 2019, with a significant portion of the 2018 growth attributed to front-loading before tariffs.
• Import Trends: Consumer goods imports are expected to rise due to tariff cuts and increased domestic consumption, though overall import growth may slow.
• Monetary and Fiscal Policies: The government will maintain a neutral monetary policy and a supportive fiscal stance, focusing on balancing growth and deleveraging.
• Deleveraging Focus: The government will continue to tighten regulations on local government debt and SOE leverage, which may impact investment and economic growth.

Conclusion

China's economic outlook for 2019 is marked by a balance between growth and deleveraging. While domestic demand and infrastructure investment may provide some support, external trade tensions and internal regulatory tightening will pose significant challenges. The economy is expected to grow at a moderate pace, with a focus on maintaining stability through prudent monetary and fiscal policies.