As trade war bites, China advisers recommend lowering 2019 growth target

BEIJING (Reuters) - China should lower next year’s growth target to 6.0-6.5 percent as headwinds including a trade dispute with the United States increases risks for the economy, according to government advisers’ recommendations to top leaders who will meet to map out the 2019 economic agenda.

FILE PHOTO: Employees work on a drilling machine production line at a factory in Zhangjiakou, Hebei province, China November 14, 2018. REUTERS/Stringer/File Photo

This week’s annual Central Economic Work Conference, a closed-door gathering of top party leaders and policymakers, is being watched by investors for any fresh policy steps to ward off a sharper slowdown in the world’s second-largest economy.

The economic conference is likely to convene on Wednesday, two policy insiders said, a day after an event marking the 40th anniversary of China’s reform and opening up, where President Xi Jinping is due to make what the official Xinhua news agency described as an “important” speech.

The meeting will not result in any public announcement of economic targets, which are usually reserved for the opening of the parliamentary session in early March.

China’s trade war with the United States is spurring some Chinese entrepreneurs, government advisers and think tanks to call for faster economic reforms and the freeing up of a private sector stifled by state controls.

Government advisers and think tanks, which are influential in the decision-making process but aren’t empowered to execute policies, have recommended a growth target of 6.0-6.5 percent for 2019, versus around 6.5 percent in 2018.

“Next year’s growth target could be 6.0-6.5 percent as the economy is likely to slow from this year,” a policy insider who advises the government, said on condition of anonymity.

The Chinese Academy of Social Science, a top government think tank, has forecast growth to slow to 6.3 percent in 2019 - which would be the weakest since 1990, from an estimated 6.6 percent in 2018.

Some advisers suggested the government should be more tolerant of weaker growth, pushing reforms and avoiding strong policy stimulus that could worsen the country’s debt problems.

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Still, a growth rate of 6.0 percent for next year is seen as the bottom line, amid concerns about employment due to pressures on the economy both domestically and on the external front.

“The economy is expected to slow next year, but the situation won’t be very serious if we can manage it well, because room for expanding domestic demand is relatively big,” said one adviser.

The State Council Information Office did not immediately respond to Reuters’ request for comment.


Last week, a meeting of the politburo - a top decision-making body of the ruling Communist Party - pledged to keep China’s economic growth within a “reasonable range” next year.

Growth in Asia’s powerhouse economy slowed to 6.5 percent in the third quarter, the weakest pace since the global financial crisis. Indications are that momentum is likely to come off further in the current quarter and next year, with data last week showing surprising softness in November factory output and retail sales.

Although full-year growth is expected to come just above 6.5 percent in 2018, government officials and China watchers have already warned of greater risks to the economy next year from trade frictions with the United States.

China’s monetary conditions should be relatively easy to support its slowing economy but policy cannot be too loose as falls in domestic interest rates could hit the local currency, central bank chief Yi Gang said last week.

The central bank is likely to deliver more cuts in banks' reserve requirement ratios, to add to the four reductions this year, but it may not rush to cut benchmark interest rates that could hurt the yuan CNY=CFXS, policy insiders said.

The government has pledged to cut taxes more aggressively next year, spurring a debate among Chinese economists on whether Beijing should expand its fiscal deficit ratio beyond 3 percent next year.

Reporting by Kevin Yao; Editing by Shri Navaratnam