China’s Re-Balancing Act

In the face of slowing economic growth, the Chinese authorities appear ready to act. Franklin Templeton Emerging Markets Equity’s Sukumar Rajah and Jason Zhu explain how measures announced at the 13thNational People’s Congress are designed to shore up China’s growth prospects.

Measures announced at China’s 13th National People’s Congress (NPC) suggest to us that the Chinese authorities are taking the threat of an economic slowdown seriously and are prepared to act.

While China faces slowing gross domestic product (GDP) growth, a trade standoff with the United States and disputes over China allowing foreign companies market access in return for technology transfers, we see policymakers stepping up to the plate to readjust and rebalance targets for a more sustainable economy.

In the face of an economic slowdown, Chinese officials have lowered the country’s 2019 GDP growth forecast to a range of 6% to 6.5%, compared to last year’s target of 6.5%. However, we feel that a slowdown is not a crisis. We believe there are ample strengths in China’s institutions and economy to prevent a hard landing.

Against this backdrop, our near-term view on China is slightly more cautious. We expect China’s economic growth to slow in the next few years as it focuses on resolving an array of challenges.

Never Underestimate China’s Strengths

In spite of these hurdles, the historical ability of the Chinese authorities to implement their policies efficiently and effectively underpins China’s potential strengths. A strong government presence in Chinese markets is nothing new.

China’s ability to implement policies stems from a system of central rule that has allowed it to resolve problems at a speed and scale that is virtually unmatched by other large developing nations, such as India.