Economy will remain resilient in 2020

Against the background of medium-and long-term economic structural adjustments, China's economic growth is likely to decline next year, too, but considering the economy's resilience and capability for short-cycle policy regulation and hedging, the economic slowdown will be manageable.

From a short-term perspective, China's trade surplus is on the wane hence its contribution to economic growth is weakening. Rising populism in some developed economies, the slowing of global trade growth and the prolonged trade disputes between Beijing and Washington will add to the downturn pressure on China's exports and industrial chain, which could further weaken the contribution of trade surplus to economic growth.

And from a medium-and long-term perspective, China's economy is undergoing some major structural adjustments, with the percentage of fixed asset investment declining in GDP, and the investment-driven growth model of the past giving way to a new, innovation-led development model.

Therefore, China should look for the "common denominator" of short-and long-term policies when weighing policy choices, namely promoting capital market reform and further opening up the economy. Given the rising short-term employment pressure and long-term industrial structural adjustment, capital market reform and opening-up will not increase inflation; instead, it will help the country's medium-and long-term transformation.

Although the United States-triggered trade war, if prolonged, could pose a challenge to China's economy, from a medium-and long-term perspective, China's current economic woes can be mainly attributed to domestic factors, such as the unsustainable growth model of the past, an excessively high leverage ratio and unfledged marketization. To fundamentally overcome these dilemmas and solve the internal problems, as well as improve the external trade and economic environment, China needs to further deepen reform and opening-up.

Despite the economic transformation putting downward pressure on the economy this year, China remains committed to accelerating opening-up and marketization reforms, including formulating a series of measures, promoting financial openness, and adopting a tax exemption policy for China (Shanghai) Pilot Free Trade Zone and the complete abolition of Qualified Foreign Institutional Investor and Renminbi Qualified Foreign Institutional Investor programs.

In addition to short-term counter-cyclical regulation policies, the government also attaches great importance to medium-and long-term structural reform policies so that it can find the greatest common denominator in the policies and use it to advantage. On Nov 7, the State Council, China's Cabinet, announced the lifting of more operational restrictions on foreign banks, securities companies, fund management firms and other financial institutions, paving the way for them to play a bigger role in the Chinese market.

As for external policy options, China needs to make greater efforts to promote regional integration to cushion the blow of the trade disputes with the US. Over the past two decades, China has become a "systemically important node" in the global trade network, so it is very important that it further strengthens economic and trade integration with neighboring countries.

China can learn from the experiences of Germany and Japan, two countries that faced similar trade frictions in the 1980s. After the 1980s, the trade surplus to GDP ratio of Japan continued to decline while that of Germany continued to rise. The reason: Since Japan's trade surplus depended heavily on the US at the time, it lacked a buffer that would have provided it ample protection after the eruption of a trade row with the US.

On the other hand, Germany's trade surplus was mainly with other European Union countries, while its trade surplus with the US was much lower than Japan's. So a drastic decline in Japan's trade surplus with the US led to a corresponding decline in its total trade surplus. By contrast, Germany successfully offset the impact of a declining trade surplus with the US by building a bigger trade surplus with other EU states.

China has become an important player in the global trade network, and its increasingly closer economic and trade ties with other Asian economies is enough to help build a "defense front" to offset the possible impact of the Sino-US trade disputes.

Aside from trade, the influence of China's capital on Asian economies, such as the Association of Southeast Asian Nations, is approaching that of the developed economies. For example, China nearly caught up with Japan and the EU in terms of foreign direct investment volume in ASEAN countries in the 2015-18 period. The US used to be ASEAN's biggest source of FDI, but China has also been catching up fast with it in recent years.

And if 2018, during which the US saw a significant return on capital due to tax cuts, is excluded, China's FDI scale was close to that of the US from 2015 to 2017.