China – Trade War Puts Recovery at Risk

• Growth recovery to be delayed by further trade war escalation. However, stimulus is set to cushion the drag from higher uncertainty. We look for growth to fall to 6.2% in 2019 from 6.6% in 2018. In 2020 we expect the economy to grow 6.1%.
• We look for a trade deal in H2, which should pave the way for a recovery in Q4. Uncertainty is elevated, though, and an all-out trade war that runs into 2020 would delay any lift to growth.
• We expect more policy stimulus with a further cut in the RRR and subsidies for consumer goods. USD/CNY to rise to 7.10 over the next quarter.
• China is set to face some headwinds from production moving to other Asian countries and US export controls in tech. China’s likely response will be more focus on self-reliance, even more investments in the tech industry and new efforts to create a better business environment for foreign companies in order to attract FDI.
• China has stepped up measures to support the private sector and continues to highlight ‘reform and opening’. We expect China to stay on a catching-up path and to surpass the US economy by 2030.

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