What's going on?
On Tuesday, China lowered its economic growth target for 2019 – from “around 6.5%” to between 6% and 6.5%.
What does this mean?
China’s 2019 was already likely to win the dubious honor of slowest annual growth since 1990 – stealing the crown from 6.6% growth in 2018 – but it’s now almost certain. Chinese officials blamed the cut to their expectations on the country’s ongoing trade war with the US reducing demand for its products and services. They also predicted that even more Chinese companies would fail to repay their high debts, putting the country’s banks at risk of greater losses.
China’s uncertain outlook for 2019 is reflected in its unusual decision to provide a range for economic growth. By steering clear of a specific number, the country may be hoping to avoid disappointing investors in the event it falls short.
Why should I care?
For markets: The United States – of China.
Investors seemingly shrugged off China’s lower growth outlook and bought Chinese stocks on Tuesday, while shares of European and US companies didn’t move much. It’s likely investors were more heartened by another Chinese announcement on Tuesday: $300 billion of tax cuts. These are primarily aimed at reviving the country’s beleaguered transportation, construction, and manufacturing sectors, and should boost their profits. Investors with a global perspective might have recalled the fillip US tax cuts gave its stocks and economy last year.
The bigger picture: Currency talks.
China also promised on Tuesday to keep the value of its currency stable – perhaps nodding toward a reportedly imminent trade deal with the US, negotiations for which included an American request that the yuan’s value hold steady compared to the dollar. Investment manager Eurizon, meanwhile, thinks the euro’s value could suffer if China’s economy doesn’t pick up. The People’s Republic is responsible for 35% of the eurozone’s already spluttering economy, which could get left behind as the US motors on. Investors will likely shift their cash accordingly.