China slowdown due to domestic policies more than trade: S&P

SINGAPORE -- China's current economic slowdown is mainly driven by domestic Government policies, according to S&P's Global Economics team in report titled, "China's Slowdown--This Time Is Different."

The Chinese government has been trying to reduce risks in the financial sector, and policy measures designed for that goal have so far slowed growth in infrastructure investment and consumption.
 
"If 2018 was tough for some parts of the economy, then 2019 promises to be tougher," said Shaun Roache, Asia-Pacific Chief Economist at S&P Global
Ratings.
 
"The areas of resilience that make this cycle, until now, quite different from the last one in 2016--property and exports--are likely to start weakening in the months ahead."
 
The property cycle appears to have turned, led by a marked softening in sales, the report says. Together with tighter financial conditions for developers, land sales are also weakening, Roache says.
 
"We assume no major breakthrough or resolution in trade and investment tensions, although we may see some progress by the March 1 deadline. 
 
"Still, trade and investment tensions, together with a broad slowdown in global growth, should start to show in China's exports and manufacturing investment.
 
"Most importantly, as businesses focus more on the potential impact of a sustained period of U.S.-China friction, we could see manufacturing investment growth fall to below 5% this year from almost 10% in 2018.
 
"However, we see trade and investment tensions as more of a long-term challenge for growth, especially the technology sector, rather than an issue that could de-rail the economy in 2019.
 
"Another difference with 2016 is that policy easing so far has been more modest, suggesting that the Government is keenly aware of the risks of over-stimulating.
 
"Our baseline assumes only a moderate further easing, mainly through local government infrastructure investment. We may also see some measures to help consumption.
 
"We believe both of these are enough to moderate, but not reverse, the slowdown by the second or third quarter and deliver full-year growth of 6.2%. This would be on the low end of the assumed 6%-6.5% target range.
 
"The key domestic risk facing China in this cycle is that policies are less effective in supporting growth as a result of deleveraging efforts over recent years.  www.standardandpoors.com (ATI).