China Survived the Trade War in Good Shape

A lantern workshop gears up ahead of Lunar New Year celebrations in China, where the economy is off to a good start in 2020. Photo: china daily/Reuters

What a difference a year makes. As 2019 dawned, the Chinese economy, battered by a credit crunch at home and trade tensions abroad, looked its shakiest since late 2015. A year later, China has fought the U.S. to a draw on the trade war, exporters’ profits are rebounding, and the labor market is stabilizing.

If 2019 proved anything, it is that U.S. pressure alone—without the help of allies—can’t completely derail China’s economy. China’s export sector was already recovering before Wednesday’s trade truce, thanks to an uptick in the global electronics industry. The real impediments to growth lie within: in a rickety financial sector and statist leadership which remains wary of market-oriented reforms.

There are a couple near-term threats—most significantly the slowing property market, which could trip up indebted developers and state industrial firms. But on the whole, the economy will enter the Year of the Rat on a significantly stronger footing.

The best evidence for this comes from rebounding investment, following months of improving profitability in light industry. Encouragingly, this seems to be centered around private, export-oriented manufacturers rather than infrastructure or heavy industry, data released Friday showed.

Investment in computers and electronics manufacturing accelerated into December, bringing the full-year increase to 16.8%. Overall manufacturing and private-sector investment both picked up. And the long-suffering auto business grew at the fastest pace since June 2018. All told, labor-intensive light industry is clearly on an uptrend after a tough 2019, which is helping the job market heal.

However, in property, another key part of the economy, things look less rosy. Real-estate investment, commercial housing sales by volume, and production of key construction inputs like glass and cement have all slowed.

Still, there are some tentative signs policy makers are acting to contain the risks in property. The central bank has been reluctant to allow another ramp-up in mortgage lending while housing prices were still bubbly. But data released Thursday showed a pickup in long-term bank lending to households in December, notes Capital Economics, which could be an early sign that regulators are easing up.

As is now widely recognized, the headline real growth figure for China—which came in at 6% for the fourth quarter—isn’t very meaningful. But more reliable figures suggest the private and manufacturing sectors are in their best shape since mid-2018.

Headwinds from a shrinking labor force, stalled reforms, and property make a V-shaped recovery unlikely. But unless the housing market crashes or lurking financial vulnerabilities burst out into the open, China’s economy looks poised for a smoother ride in 2020.

Write to Nathaniel Taplin at

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