Still defying doomsayers' predictions

China's economic performance this year has beaten the pessimistic market expectations aired at the end of last year. The world's second-largest economy has withstood the double blow of the sluggish world economy and China-US trade dispute with sound growth momentum, defying the doomsayers' pessimistic predictions of a double-digit trade slump, sharp decline in foreign exchange reserves, soaring unemployment rate and massive foreign capital outflow.

In 2019, against the backdrop of the universal economic slowdown worldwide, China has successfully defended major bottom lines and accomplished relevant goals. It has held to the bottom lines of no mass layoffs and no systemic financial risks by stabilizing employment and safeguarding financial stability. In addition, reform measures have yielded more and more dividends to the market.

Despite being plagued by both domestic and foreign factors, the Chinese economy not only showcased its resilience by defying doomsayers' extreme predictions, but also maintained its leading position in growth rate compared with other major economies.

The 2019 global GDP growth rate is expected to drop by 0.6 percentage points, the same as the US, while the euro zone is expected to drop by 0.7 percentage points and India by over 1 percentage point. In comparison, China's GDP growth is expected to slow by 0.5 percentage points.

The downward trend will continue into the year 2020, with a quickening slowdown in economic growth. In 2020, the globalization, industrialization and demographic dividend will continue on the downward trend witnessed in 2019. But we should not be too pessimistic. The gradual defusing of financial risks and temporary alleviation of trade tensions between China and the United States will provide a relatively stable financial and foreign trade environment for China in 2020, creating more favorable conditions for the restoration of market confidence. The reversal of some cyclical factors and increasing reform dividends will be the most expected new changes for 2020.

To start with, the continued release of reform dividends will prevent the Chinese economy from slowing down too fast. For instance, the 336 major reform measures stipulated at the Third Plenary Session of the 18th CPC Central Committee have been basically implemented, building up institutional advantages. The supply-side structural reform has been ongoing for five years, achieving great success. The business environment has markedly improved, with China taking a higher spot in the global innovation index. The decisions of the Fourth Plenary Session of the 19th CPC Central Committee are being implemented nationwide.

Second, China's financial environment has significantly improved and financial risks are decreasing, with stabilization of various leverage ratios, a slowdown in payable debt growth and proper disposal of high-risk institutions. Over the past few years, China has made steady progress in what it calls "structural deleveraging," with the leverage ratio of State-owned enterprises decreasing and that of private businesses increasing and their gap narrowing. As of the end of September, the debt/asset ratio of State-owned and State-controlled industrial companies stood at 58.4 percent while that of private industrial companies was 57.9 percent. Furthermore, financial risks are constantly decreasing, with risks in areas such as P2P platforms, stock market turbulence, the bond defaults of some private companies, and the pressure from small－and medium-sized banks, under control. Third, the soaring price of pork is one of the most unique macroeconomic events in 2019. The skyrocketing pork price not only reduced people's spending in other areas and people's expectations of future consumption, but also interfered with macro-control efforts. It's one of the main reasons for the slowdown of consumption growth.

Right now, the panic period over China-US trade confrontation is over, with adaptations and adjustments already in place and corporate confidence restored. Even though China-US trade confrontations may have ups and downs, it should not deal a heavy blow to the broader economy.

The pork price is about to fall after peaking, exerting less influence on people's wellbeing and China's macroeconomic policies. With the current speed of market adjustment, it's expected that pork production will improve in the first half of 2020 and the price of pork is expected to fall in the second half of 2020, providing more room for maneuver on macroeconomic policies and increasing people's willingness to spend.

Finally, the year 2020 will reap more reform dividends than previous years. With more efforts to reduce tax and administrative fees, Chinese companies will enjoy a more favorable business environment and the effects of the policy will be obvious in 2020. Also, China will complete the building of a moderately prosperous society in all aspects, laying a solid foundation for bolstering income distribution reform. In addition, a new round of interest rate cuts is taking place worldwide, boosting global economic recovery.

The enormous Chinese market, diversified export channels, complete industrial system, abundant human resources, rising awareness and competitiveness in innovation and an effective government have all contributed to the strong resilience of the Chinese economy, which will play a fundamental role in stabilizing growth next year. In 2020, China's GDP will surpass 100 trillion yuan ($14.32 trillion), with per-capita GDP exceeding $10,000. The advantage of China's market size and the consumption potential of its expanding middle-income group will be further strengthened. Such structural change means China will have strong and robust growth momentum in years to come.

However, the deeper structural and institutional problems of the Chinese economy should not be overlooked. The slowdown in consumption growth increases the vulnerability of the economy. China should implement the prudent monetary policy in accordance with new circumstances, unveil more precise fiscal policy to boost domestic demand, implement the decisions of the Fourth Plenary Session of the 19th CPC Central Committee and start a new round of reform and opening-up and supply-side structural reform in an all-round manner.

The author is vice-president of Renmin University of China.

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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