China’s weakening economy has started to spook investors. The latest issue of the MERICS Economic Indicators suggests that the worst may be yet to come. The slowdown in growth over the third quarter of 2018 was mostly caused by domestic factors. As the country braces for the impact of the trade war with the United States, the fourth quarter is likely to become even more uncomfortable.
MERICS economists Max J. Zenglein and Maximilian Kärnfelt argue that China still has enough room for monetary and fiscal easing to reach the government’s 6.5% growth target for this year. But they also warn that stimulus measures will come at the expense of the campaign to reduce China’s debt burden, which is unsustainable in the long term.
Amid all this uncertainty, the boom continues in parts of the Chinese economy. The importance of the service sector keeps increasing as a driver of growth. In this issue’s focus topic, Anna Holzmann highlights the remarkable success of China’s state-led development of a globally competitive battery industry for electric vehicles.
The MERICS Economic Indicators are published on a quarterly basis and trace the multiple data sets that shape China’s development in key areas, among them growth figures, investment flows, industrial output, financial markets and consumer sentiment.