Coronavirus: China’s 2020 growth forecast slashed in surprise move by prominent bank CICC

26-Mar-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

Debate about the impact of the coronavirus pandemic on China’s economy took on a new complexion on Monday after the country’s most prominent investment bank turned pessimistic, slashing its 2020 growth forecast.

President Xi Jinping has insisted China will meet its economic and social developments goals this year, including eradicating poverty and building up a “moderately well-off society”, despite the virus outbreak sending the economy into free fall in the first two months of the year and increasing evidence of a global recession.

The government has recently strengthened its rhetoric about the resilience of China’s economy, and a number of Chinese economists still believe gross domestic product (GDP) growth this year could be close to the 6 per cent target range that was expected to be announced in March.

But on Monday, the China International Capital Corporation (CICC) seen by many as the country’s most highest-profile brokerage stunned many in Chinese financial circles by sharply cutting its real GDP growth forecast for 2020 to a record low of 2.6 per cent, from 6.1 per cent in January.

The CICC had previously been relentlessly positive about China’s economic outlook, and the shift in tone highlights the gloomy prospects facing the world’s second largest economy.

The Beijing-headquartered firm is the first China-foreign joint venture investment bank, founded by the China Construction Bank, Morgan Stanley, the China National Investment and Guaranty Corporation and other two companies in 1995. Since then, it has been a benchmark for Chinese economic optimists.

“Many poor figures will [appear] in the second quarter, and as the epidemic continues, there will be worse readings in May, June or even beyond,” Liang Hong, chief economist at CICC, said in a telephone conference call on Monday, according to a transcript seen by the South China Morning Post.

“China’s steps to ease policy, whether monetary or fiscal policies, are so far insufficient.”

China’s steps to ease policy, whether monetary or fiscal policies, are so far insufficient

Liang Hong

In its written note, CICC analysts led by Liang said that a severe global recession could last for two or three quarters due to the rapid spread of the pandemic, pushing Chinese GDP down by six percentage points and causing the country’s exports to collapse by 18 per cent this year.

However, other Chinese economists remain more bullish about the health of China’s economy.

Wei Jianguo, a former vice-minister of commerce, wrote in a commentary piece for the think tank China Going Global on March 13 that it was still possible for the economy to grow at 6 per cent this year.

China’s consumer spending could rebound sharply later this year after the epidemic passes, resulting in the country surpassing the United States to become the world’s largest consumer market, with annual retail sales of 45 trillion yuan (US$6.3 trillion), up 8 per cent from last year, Wei said.

He also predicted an influx of foreign investment after the outbreak was under control dismissing widespread concerns about an exodus led by high-end industries such as cloud computing, intelligent manufacturing and high-end services, with technology venture capital and top talent increasingly moving to the East.

“The epidemic brings a heaven-sent chance for China’s supply reforms to result in high-quality development and modernisation of national governance,” Wei told the Post in an interview earlier this month.

“I believe China has the power and ability to turn the epidemic into an opportunity… the price we have paid will not be wasted,” he added.

Despite its substantial cut, the CICC forecast is still rosier than those of some of its peers.

I believe China has the power and ability to turn the epidemic into an opportunity… the price we have paid will not be wasted

Wei Jianguo

Economists with Nomura Bank lead by Lu Ting, the company’s chief China economist, have slashed their annual growth forecasts for 2020 to 1.3 per cent from 4.8 per cent, predicting the Chinese economy would contract 9 per cent in the first quarter.

Bank of America Merrill Lynch has also cut its annual GDP growth forecast for this year to 1.5 per cent and expects a first quarter contraction of 6 per cent.

The dismal forecasts have underlined just how much pressure China’s economy is under from the coronavirus. Late last year Chinese economists were debating how stringently the country needed to defend a 6 per cent annual growth rate to double the size of its economy in the decade to 2020, a key government promise.

Now, most analysts expect Beijing to lower the growth target and raise the upper limit for its budget deficit to better weather the economic damage.

Ren Zeping, chief economist at Evergrande Research Institute, said that China might offer a wide growth target range for this year to give it flexibility.

Policymakers have already given indications they may target lower economic expansion in 2020.

“It is not a big deal whether the economic growth rate is a bit higher or lower this year, as long as the job market is stable,” Chinese Premier Li Keqiang said at a meeting of the State Council on March 10.

To maintain stable employment, the economy must grow by at least 5.5 per cent this year, Hua Changchun, chief economist at Guotai Junan Securities, wrote on March 12.

President Xi Jinping announced early in March that China would respond to the economic slowdown by speeding up so-called “new infrastructure” investment. Authorities have said that will include 5G, data centres and the industrial internet of things.


Category: China

Print This Post