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Are China’s recent US trade war woes the sole culprit for its slowing GDP growth? In this commentary, George Magnus, a former chief economist at UBS, argues that there are underlying, homemade structural issues at play that appear destructive: the economy is predicted to halve again in five years. Why? Both components of long term growth – productivity and labour force population – are declining, leading trend GDP to slow to 3%. Magnus links this to bureaucracy and the ubiquitous party control, causing restrains to the freedom of the private sector and inefficient markets. Further, after the 2015 Renminbi crisis, the government got serious about deleveraging and limited the credit capacity of large and small borrowers alike. With high debt levels having fuelled growth for a long time, it’s a sobering experience to see growth now sliding off. ‘No surprise employment’ has been every policy meeting’s top priority – as the above piece draws attention to. Now, if we combine the US trade and tech war with China’s issues at home, the worry is understandable.
Why does this matter? While most expect Chinese growth will fall even if a trade deal is achieved, Magnus is more bearish. He therefore expects even more dovish actions by Chinese policymakers than the current fine-tuning policies of lower Reserve Ratio Requirements and tax cuts.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)