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After having held up well into 2018, growth has recently weakened and is projected to decline in 2019-20. Signs of slowdown include the weakening of industrial production, profits and revenues. Foreign trade flows will lose some momentum following the escalation of trade tensions. The slowdown of activity also reflects the cutback of infrastructure investment, as local government debt has been subject to greater scrutiny, though it could rebound following the recent acceleration of debt issuance and announcement of new projects.
Monetary conditions are now being eased to support economic activity. The escalation of trade tensions resulted in a fall of the exchange rate, which was halted by government interventions, and a decline in stock prices. Fiscal policy will remain supportive to counteract the weakening of growth. Government spending efficiency will benefit from newly introduced comprehensive performance budgeting, but capital allocation efficiency needs to be improved by gradually removing implicit guarantees to state-owned enterprises and other government entities. Measures introduced recently to lower average tariffs are welcome and should continue alongside further easing of the operation of foreign companies.
1. Monthly industrial value added data for January and February are not published separately, but for the two months combined. The missing data are computed by linear interpolation.
1. Core shadow banking items include entrusted loans, trusted loans and undiscounted bankers' acceptance.
Source: CEIC; and BIS.
Economic Survey of China (survey page)