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China Country Risk Report Q1 2019

China Country Risk Report Q1 2019

We forecast China's real GDP growth to fall over the coming years, averaging 5 9% from 2018 to 2022, versus 7 1% over the past five years The Chinese gov-ernment is still committed to reducing financial risks in the economy and increase environmental protection, which are likely to weigh on investment growth Additionally, the country's long-term trade outlook continues to face downside risks from rising global protectionism led by the US That said, the consumer sector is likely to be a bright spot over the medium-term

The Chinese central government appears to be shifting its focus towards speeding up reforms, and plans to reduce overcapacity, improve the efficiency of state-owned enterprises (SOEs), and encourage private investment are steps in the right direction The Politburo Standing Committee for the 19th Central Committee of the Communist Party of China (CPC) that was elected on October 25, 2017 appears to be more reform-minded However, progress is unlikely to be smooth over the coming years due to political and social considerations Should the CPC drag its feet on badly-needed SOE reforms and the curbing of non-financial corporate debt, particularly in the industrial sector, the economy could be relegated to a multi-year stagnation that could prove difficult to escape

We expect the Chinese yuan to remain under pressure due to the ongoing trade conflict with the US and loosening bias by Chinese policymakers, coupled with an overvalued real effective exchange rate That said, the weakness is likely to be modest as depreciatory expectations are not entrenched, while the currency is supported by positives, such as the government's efforts to limit money supply growth and boost the private sector Major Forecast Changes

We have revised down our 2018 and 2019 forecasts for China's current account to a slight deficit of 0 1% of GDP and 0 3%, respectively (from a surplus of 1 1% of GDP and 0 9% previously) to reflect the faster-than-anticipated deterioration in the current account

Key Risks

China's overall debt level is at an elevated level, and there exists the possibility that the economy's extensive debt overhang could lead to a rapid rise in bad debts, cascading defaults, and a significant downturn in economic growth China Country Risk Q1 2019


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Trade Tensions To Further Weigh On Chinese Growth In 2019
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
China's Current Account To Record First Multi-Year Deficit Starting From 2018
Outlook On External Position
TABLE: MAIN EXPORT & IMPORT PARTNERS
TABLE: MAIN EXPORTS & IMPORTS
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
People's Bank Of China's Q318 Monetary Policy Report Signals Further Targeted Support
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
More Chinese Economic Support Likely Following Politburo's Rhetoric Shift
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
China Country Risk Q1 2019THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.ContentsCurrency Forecast
Chinese Yuan To Remain Under Pressure From Looser Policy, Trade Dispute
TABLE: FITCH SOLUTIONS CURRENCY FORECAST
10-Year Forecast
The Chinese Economy To 2027
Further Slowdown As Economy Rebalances
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
US-China Relations: Four Scenarios To 2030
TABLE: POLITICAL OVERVIEW
TABLE: APPENDIX: ASIAN STATES AND THEIR RELATIONSHIPS WITH CHINA
Long-Term Political Outlook
Major Challenges Over The Coming Decades
Operational Risk
TABLE: OPERATIONAL RISK
Economic Openness
TABLE: TARIFF AND NON-TARIFF TRADE BARRIERS
TABLE: FREE TRADE AGREEMENTS
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
TABLE: BARRIERS TO FDI
Utilities Network
TABLE: ELECTRICITY RISKS
TABLE: FUEL RISKS
TABLE: TELECOMMUNICATION RISKS
TABLE: WATER RISKS
Global Macro Outlook
Continued Growth Divergence And Policy Risks Ahead
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: CHINA – MACROECONOMIC DATA AND FORECASTS

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