Even Optimists Lowered China's Economic Growth Forecast... Will the Downward Trend Continue?

China's Largest Investment Bank CICC Projects 2.6% Growth Rate for This Year.

[Asia Economy Beijing=Special Correspondent Sunmi Park] China International Capital Corporation (CICC), China’s largest investment bank that has maintained an optimistic view on the Chinese economy, has drastically lowered its growth forecast for this year. While the Chinese government remains optimistic about the economy, this move by the largest financial institution suggests that Chinese agencies may soon consecutively revise their growth forecasts downward.

According to the Hong Kong South China Morning Post (SCMP) on the 25th, CICC presented a forecast of 2.6% economic growth for China this year in a report released the previous day. This is a downward revision to less than half of the 6.1% forecast presented in January. CICC diagnosed that the Chinese economy will face difficulties not only in the first quarter, when the COVID-19 outbreak peaked, but also in the second quarter. Furthermore, it stated that the global economic recession caused by the COVID-19 pandemic could continue for two to three quarters, which could lower China’s economic growth rate by 6 percentage points and reduce exports by about 18% this year.

Since CICC is China’s largest investment bank and a representative institution that has been optimistic about the Chinese economy, this downward revision of the growth forecast is expected to have a significant impact on growth forecasts presented by Chinese financial institutions in the future. SCMP noted that CICC, as China’s first Sino-foreign joint venture investment bank, has served as a benchmark for economic optimists in China.

Liang Hong, CICC’s chief economist, said, “Poor economic indicators will appear in the second quarter as well,” adding, “If the COVID-19 situation continues, worse figures may continue to emerge in May and June and beyond.” He pointed out, “Whether it is China’s fiscal policy or monetary policy, the policy easing measures so far are insufficient.”

This forecast by CICC came amid Chinese President Xi Jinping’s confidence that China can achieve its economic goals despite the spread of COVID-19.

China aims to double its gross domestic product (GDP) size from 2010 levels this year and eliminate poverty to build a comprehensive Xiaokang (小康, a moderately prosperous society where all citizens enjoy comfortable and affluent lives). Despite economic indicators in January and February reflecting the full impact of the COVID-19 economic shock, Chinese state media report that the fundamentals of the Chinese economy remain strong and that economic goals can be achieved.

Accordingly, a considerable number of economists in China remain optimistic that the economy can overcome the COVID-19 shock and approach 6% growth this year. Wei Jianguo, secretary general of the China Center for International Economic Exchanges and former vice minister of the Ministry of Commerce, claimed through a state-affiliated institution on the 13th that 6% growth is possible this year. As evidence, he cited a rapid recovery in consumer spending after the COVID-19 situation is resolved, with annual retail sales potentially increasing by about 8% to around 45 trillion yuan compared to last year.

CICC’s drastic downward revision of China’s economic growth forecast lies between the 1-2% growth forecasts presented by global investment banks free from Chinese government influence and the 4-6% growth forecasts presented by Chinese institutions. Nomura Securities forecast that China’s economy contracted by 9% in the first quarter and that the annual growth rate will fall to around 1.3%. Bank of America (BOA)-Merrill Lynch also diagnosed that the economy shrank by 6% in the first quarter and will grow only 1.5% for the entire year.

Meanwhile, as the Chinese government postponed the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC), the country’s largest political events, it has yet to announce this year’s growth target. Economic scholar Ren Zeping, head of the Evergrande Group Economic Research Institute, advised that the government might present a broader growth target considering the COVID-19 situation. Earlier, Premier Li Keqiang stated at a State Council meeting on the 10th that the exact level of economic growth this year is not a major issue, and that the important thing is employment stability. Regarding this, Hua Changchun, chief economist at Guotai Junan Securities, diagnosed that the minimum economic growth rate required by the Chinese government to ensure employment stability will be around 5.5%.