It has been a week of developments, which is welcome. The US and China signed the first phase trade deal, the Chinese official statisticians announced the GDP growth rate for 2019 at 6.1%, and the UK indicated that Huawei would not likely be invited to participate in its core telecoms infrastructure 5G upgrade.
The question on the trade deal is who gave up the most, and it is argued by some that the Chinese conceded more than the Americans. Now comes implementation, and there is another question mark over whether China can fulfill its commitments with regard to purchases of US goods to help balance off the trade deficit. It’s probably going to be tough. US tariffs on Chinese goods entering the US market to a large extent remain in place, and the fundamentals of the relationship have really only been clarified rather than resolved by the tortuous process leading to the signing in Washington this week. The arrangement addresses to only a marginal extent the fundamental disconnect between the Chinese and international systems, and the stand-off in terms of tech in particular will be unaffected by the phase one deal.
A question has been how the UK would address the Huawei situation, and indications this week show that Huawei equipment will possibly be used only for non-core purposes. There has been a huge effort by the US side to convince the British not to allow Huawei in. Huawei will be making news again next week, when the company’s CFO and daughter of the founder, is due to appear in court in Vancouver in relation to a US request for her extradition to face charges relating to alleged sanction infringements by Huawei.
And then there is the economy. The reported growth number was 6.1%. Putting aside how accurate or reflective of reality these numbers are, it was relatively speaking significant in that it was the lowest growth rate reported by the Chinese government since 1990. The US-China trade standoff certainly contributed to this, but our view has long been that it is fundamentally domestic and factors unrelated to the trade war that dominate in terms of the overall trend of China’s economy. Holding the line above 6.0 for 2020 is going to be a challenge and one of the most significant pieces of news this week was a story from the Financial Times saying that the State Grid is assuming that the GDP growth rate slows to 4% over the next five years. With electricity consumption generally seen as a useful proxy for real economic growth rates, that is significant.
But overall, and in spite of swine fever and a weird virus in Wuhan, 2019 did not turn out to be as bad as it could have been for China and maybe 2020 will be surprise on the upside too.
Enjoy the weekend ahead.