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The Global Economy Is Slowing, And The Mainland Economy Is Shifting To Services And Consumption
Kinghood International Logistics Inc | Updated: Feb 11, 2019

The mainland economy is shifting from an emphasis on exports and investment to one on services and consumption.Domestic demand in mainland China will remain stable in 2019.The mainland economy is expected to grow by 6.5 per cent.

The mainland's economy has been resilient in 2018, growing at an annual rate of 6.7 percent in the first three quarters, only slightly lower than the 6.9 percent for the whole of 2017.Consumption contributed 78% to overall economic growth in the first three quarters, indicating its growing role as a driver of economic expansion.On the contrary, the external environment during the period of increasing test, net exports drag down overall economic growth.

While the economy is transforming, individual income tax and import tariff will be cut to further support consumption.In the first 10 months of 2018, retail sales rose 9.2 percent from a year earlier, outpacing the 5.7 percent increase in fixed-asset investment, a trend expected to continue in 2019.

In recent years, the mainland has stepped up measures to reduce industrial overcapacity and slow down credit growth. Fixed-asset investment and industrial output growth have slowed down significantly, as has the overall economic growth.China's proactive fiscal policies and related measures have supported economic growth, including approval to accelerate the issuance of special bonds for infrastructure spending.Infrastructure investment growth has picked up from a multiyear low in August, according to data.

The report pointed out that the accelerated growth of investment in manufacturing, partly reflecting manufacturers' accelerated investment in technology and industrial upgrading, is another bright spot in economic growth.Investment in computers, electronic machinery and equipment grew much faster than overall manufacturing or fixed asset investment.Looking ahead to 2019, the growth of fixed asset investment is not expected to continue the downward trend in recent years, remaining stable between 5.5 and 6.5 percent.

Although domestic demand will remain stable under measures to support consumption and investment, the external environment has become unclear, implying downside risks to foreign trade.The us has twice announced tariffs on $250bn worth of Chinese goods, which could curb trade growth in the coming months.Even with the recent agreement to suspend new tariffs from next year, it remains to be seen whether a full trade deal can be reached in future negotiations.

Recent signs of a global slowdown have complicated the outlook for foreign trade.Manufacturing growth has slowed in the us, the eurozone and parts of Asia.Volatility in financial markets may also affect consumption and investment, and thus the real economy.As a result, mainland trade growth is expected to slow and the economy is forecast to grow 6.5 per cent in 2019, slightly below the 6.6 per cent forecast for 2018.

The sino-us trade dispute has prompted investors to buy dollars to hedge their bets.At the same time, the dollar has been supported by the strength of the U.S. economy and the gradual increase in interest rates by the federal reserve.As a result, downward pressure on the renminbi against the dollar has increased sharply, falling above 6.97 in October.

We do not expect a continued one-way devaluation of the renminbi, not only because of the recent tentative agreement in the china-us trade negotiations, but also because the fed will assess the latest interest rate outlook if global economic growth, including the us, slows from the past year.Fed chairman Powell has signaled in recent remarks that a rate hike may not be necessary after December.As a result, any hint that the fed might change its stance on raising interest rates could help support the yuan by dampening demand for dollars.

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