China: Behind the slowdown, there is promise - Westpac

In opinion of analysts at Westpac, China’s annual growth has continued to decelerate throughout the 2018, from 6.8% at March to 6.4% in December.

Key Quotes

“The annualised pace in the December quarter was weaker still, circa 6.0%. These are outcomes reminiscent of the GFC low of March 2009, so it is not surprising that many in financial markets are concerned about 2019 and beyond. From the official PMI’s, a broad-based slowdown is evident across manufacturing and, to a lesser extent, services, led by a deterioration in external demand.”

“Regarding trade, it is important to note that the shock being experienced by China currently is having flow-on effects for the rest of Asia, especially the North-east Asia block.”

“Although the market’s focus remains on the effect of the global slowdown and US/China tensions on trade, the key determinant of China’s softer growth in 2018 was actually structural change, planned and managed by China’s central government. Put simply, in pursuit of long–term financial stability and sustainable growth, 2017 and 2018 saw China’s economic authorities focus on the quality of growth, particularly its longevity; equitable distribution; and environmental impact, with far ranging implications.”

“While we cannot ignore the risks apparent in China’s external position, that the pursuit of ‘quality growth’ is at the core of this slowdown and given Chinese authorities’ capacity and willingness to aid momentum, we look to 2019 and 2020 first and foremost with optimism rather than concern, anticipating growth will be sustained around 6%.”