Chinese economic growth likely to stabilize, Trump’s trade policies pose concern

China will release its gross domestic product (GDP) figure for the last quarter of 2016 and fiscal year 2016 (FY16) on Friday. We expect that the world’s second-largest economy will maintain its economic growth at 6.7 percent y/y, similar to all three-quarters of 2016, while remaining within the government’s target range of 6.5-7 percent.

Consumption continues to play an important role in stabilising the mainland economy. Retail sales are projected to grow more than 10.5 percent in the fourth quarter. High-frequency data such as foot traffic at shopping centres and restaurants increased in December on a month-on-month basis. Year-end auto sales also appeared brisk, reported DBS Group Research.

Chinese shoppers are helping the economy transited away from over-reliance on investment-led growth. Indeed, consumption’s contribution to GDP growth has risen from 48 percent in 2013 to 76 percent in the first three-quarters of 2016. While industrial production and fixed asset investment (FAI) still hovered around multi-year lows, leading indicators include PMI and electricity production suggest that the country’s traditional sectors ended the year on a more solid footing, they added.

The DBS in its research note mentioned that against this backdrop, growth in China is expected to be stable into early 2017, barring a realisation of restrictive trade policies under a Trump presidency. The US president-elect’s appointment of Peter Navarro (a strident China critic) as head of a newly created National Trade Council and Robert Lighthizer as US Trade Representative suggests a very hawkish trade policy towards China.