China EconTalk: China can take a gradual slowdown

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02:47

After experiencing a moderate year, China's economy is likely to continue slowing down this year. But officials should focus more on preventing drastic fluctuations in the economy rather than economic slowdowns itself, according to Vincent Chan, head of the China Equity Strategy Research at Credit Suisse.

“I think what the central government should focus on is to prevent sharp volatility in the economy, rather than slowdowns itself. I think a gradual slowdown in China is acceptable,” Chan said.

He emphasized two risks lying in front of China's economy. “The first is whether China will witness a deflation,” he noted.

“If we look at Producer Price Index (PPI) for China, one year ago it was still at four to five percent. The last state point was already 0.9 percent in December. Whether you like it or not, we will see negative number for PPI in 2019 (decreasing PPI could cause deflation), and deflation could affect corporate profit,” Chan added.

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The second risk, in his opinion, “is what would be the slowdown's impact on unemployment.”

The economist continued to explain. “Particularly, in the last few years, we have seen many companies invest aggressively in areas like automation. So some labor forces have been naturally replaced by machines already. And then, how would this downturn overlay with structural forces from more machines and less people? How would that affect their employment picture?”

From his perspective, the government has made efforts to stabilize economy, especially restoring business confidences.

“I think recent policies of improving the interbank liquidity, cutting triple RRR as well as central government's push for banks to lend more to private sector are kinds of moves that you need to do,” he remarked.

And he is positive on a better financing access for small and medium size enterprises (SMEs) in China.

“I think in the context of China, given the government's huge influence on banks, I can expect at least the short term working capital condition of SMEs will improve this year,” Chan said with confidence.

Chan expected to see global economy slowing down this year.

“In the last couple of years, China's economic growth accounted for almost half of (the) global growth every year. So the slowdown of Chinese economy definitely will have a global impact. The U.S. Fed is also on its tightening, which at next year maybe later, starts to bring down the U.S. economic growth,” he shared his concern.

“Basically, among the world's most important growth engines, the biggest two engines (China and U.S.) are probably not doing too well. So the bottom line is that the global economy will likely slow down,” Chan told CGTN.