China likely to set a growth target of 6% for 2020 – Standard Chartered

Analysts at Standard Chartered are expecting China to set a growth target of around 6% for 2020.

• “The recent Politburo meeting confirmed that the government is unlikely to drop the target of doubling 2010 GDP by 2020, a year before the 100th anniversary of the Communist Party. This requires a minimum growth of 6.1-6.2% in 2019-20, according to our and official calculations. While GDP growth rates up to 2018 are likely to be revised based on the latest economic census, we believe the upward data revisions will be marginal and insufficient to meaningfully lower the 2020 growth target.
• The government has pledged counter-cyclical policies to offset the headwinds. We estimate that higher US tariffs will reduce China’s 2020 growth by 0.3ppt with the achievement of a ‘phase one’ trade deal and by 0.6ppt in a ‘worse-case’ scenario.
• The broadly defined budget deficit is likely to remain at around 6.5% of GDP, with the mix of fiscal stimulus shifting from tax cuts to spending for a higher multiplier effect. The People’s Bank of China (PBoC) may keep credit growth slightly above nominal GDP growth, cutting the reserve requirement ratio (RRR) and de facto policy rates.
• The switch to re-leveraging in 2019 from deleveraging in 2018 may turn out to be a key support for 2020 growth. In addition, we expect infrastructure investment to edge higher on fiscal stimulus; the industrial inventory cycle to bottom out; car sales to be less of a drag; and last but not least, a positive leap-year effect.”