Global IB Raises China's Growth Rate This Year... "Impact of Push-Out Exports"

Global investment banks (IBs) have been successively revising upward their forecasts for China's economic growth rate this year. This is based on the expectation that China's push-driven exports will drive economic growth. Despite warnings from the United States about global industrial disruption caused by low-priced Chinese products, China remains indifferent. As deflationary pressure (falling prices amid stagnation) emerges as a core threat to the Chinese economy, concerns are rising that Chinese authorities will offer more support benefits to domestic companies to achieve an economic growth rate of 5% this year.

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According to major foreign media such as Bloomberg and The Wall Street Journal (WSJ) on the 10th (local time), a team led by Hui Shan, an economist at Goldman Sachs, observed in a report that China’s first-quarter economic growth rate is expected to have reached 7.5%. This figure far exceeds the previous forecast of 5.6%. Goldman Sachs has revised upward its forecast for China’s economic growth rate this year from 4.8% to 5%.

On the same day, Morgan Stanley also raised its forecast for China’s growth rate this year from 4.2% to 4.8%, citing strong trade indicators such as the recovery of U.S. exports. WSJ reported, “In comparison, economists at the Asian Development Bank also expect China’s economic growth outlook this year to approach the Chinese government’s target of 5%.”

There had been a prevailing view that China’s economy would show weakness this year due to factors such as a real estate slump, consumption slowdown, and aging working population. The International Monetary Fund (IMF) had predicted that China’s economic growth rate would remain around 4% for the coming years. However, analysis shows that China’s factory activity and export sector indicators are showing better-than-expected growth this year. Last month, the Caixin Manufacturing Purchasing Managers’ Index (PMI) recorded 51.1, marking five consecutive months of increase. A PMI above 50 indicates economic recovery.

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When the Chinese government set the economic growth target at 5% this year, Western media analyzed it as “close to impossible,” but the mood has changed. WSJ analyzed this as the effect of China pushing low-priced products into the global market in sectors such as electric vehicles, battery technology, and solar power. To counter the economic downturn, China is providing massive subsidies to related domestic companies, gaining an advantage in global market dominance. This is why U.S. Treasury Secretary Janet Yellen recently warned during her visit to China that China’s industrial overproduction is disrupting the global industrial landscape.

However, deflation remains a variable in China’s economic growth. Last month, China’s Consumer Price Index (CPI) rose only 0.1% year-on-year, significantly below market expectations of 0.4%. Bloomberg noted, “Deflationary pressure will be a major obstacle to China’s economy.”

Regarding this, WSJ reported, “China may introduce stronger stimulus measures such as tax cuts and various subsidies to drive the targeted economic growth.” On the 9th, the Chinese government announced plans to expand industrial equipment investment by more than 25% by 2027. The core of this plan is to accelerate the adoption of advanced equipment in sectors such as aviation, solar power, and construction machinery by expanding financial support and tax benefits for companies. On the 7th, while Secretary Yellen was visiting China, China also announced plans to provide financial support worth 500 billion yuan to support domestic companies in advanced science and technology sectors.

There are also forecasts that conflicts with the U.S. will be inevitable as China pursues its targeted economic growth rate. Chinese authorities maintain that their domestic production capacity has made a healthy contribution to global industrial development.

As economic stimulus measures led by President Xi Jinping continue to pour out, the Chinese stock market is soaring from its lows. The Shanghai Composite Index has risen about 12% since its low in early February, and the Hong Kong H-Share Index has surged about 21% since its low at the end of January.

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