Uncertainty is the enemy of markets, but seems assured for the year ahead when it comes to China’s economic outlook.
At a CCTV-2 debate, one of the first sessions of the World Economic Forum’s 13th Annual Meeting of the New Champions, panellists differed over projections for China’s growth – some sanguine, others cautious – but agreed on the challenges ahead in turbulent times.
“Trade difficulties still exist,” said Ning Gaoning, Chairman of the Sinochem Group. “But companies are prepared.” He remained bullish on growth prospects: “I’m quite optimistic,” he said. “The momentum of China’s economic growth is very strong.”
Min Zhu, Chairman of China’s National Institute of Financial Research, demurred. “In 2019, the risk has gone up, not down,” identifying the rising risk of a no-deal Brexit and its effects on financial markets as a major factor, given the likelihood of Boris Johnson becoming the next Prime Minister of the UK.
The trade dispute between the United States and China remains a major spanner in the gears of China’s economic machine. Yet, US President Donald Trump’s recent decision to allow US technology companies to sell to Huawei is a positive sign, “acknowledging that the technological supply chain cannot be disrupted,” stressed Zhu.
Further positive signals at the G20 summit in Osaka, with trade negotiations restarted and signs of consensus, may buoy markets. Yet as Ning highlighted, “Chinese companies are confronted with the challenge of changing their business models.”
Participants were reminded that China’s economy, the second largest in the world, is still growing apace and bolstering the world economy. “China is contributing more to global growth than any other country,” said Jing Ulrich, Vice-Chairman of Global Banking and Asia-Pacific at JPMorgan Chase & Co.
Yet new drivers of that growth will be needed to ensure its continued primacy.
“China is moving to a more balanced growth model, a more consumer-driven growth model,” said Joachim von Amsberg, Vice-President of Policy and Strategy at the Asian Infrastructure Investment Bank. He cited investment in infrastructure – not just domestically, but also in the wider region – as another new driver of development.
Consumption and an expanding service sector have mixed prospects: car sales have dropped in China, but the cosmetics market has grown. “I see consumption powering ahead, despite economic uncertainties,“ said Ulrich. “Chinese are opening up their purse strings; they are spending more and saving less.”
“Technology and innovation will become very important drivers of growth,” Ulrich added. “5G is not just faster, but will transform the way we live and work.” She attributed falling car sales to the changing market as consumers move to car-sharing platforms, with autonomous vehicles as a further expected disruption.
“The combination of a robust economic backdrop, technology innovation and the propensity to consume,” Ulrich summarized, “will mean that, in the next five to 10 years, China will continue to be a very strong global economic driver, not just here in Asia.”
Ning stressed China’s job creation and its R&D sector as crucial elements of growth, and claimed that the nation had “surpassed the middle-income trap.” He continued: “China enjoys stability, and our governance mechanism has optimized, so industrialization will continue to improve.”
Others were not so optimistic. Kevin Sneader, Global Managing Partner at McKinsey & Company, identified the disruptions of shifting power, demographics, populism and the environment, as well as the Fourth Industrial Revolution, as “real challenges [to] the established way of doing things.”
“China is still the biggest market in the world,” he emphasized. “The world needs China more than China needs the world.” Yet a flat-to-declining working population, changing production chains and technological disruption will shake its economic foundations.
“It’s too early to see how this will play out,” he said, adding: “The one thing that we can be certain of is that uncertainty will continue.”