China’s GDP grows at slowest pace in 29 years

World’s second-largest economy grew 6.1% in 2019 as trade war and domestic pressures took toll

Don Weinland and Sun Yu in Beijing

A worker welds a bicycle steel rim at a factory manufacturing sports equipment in Hangzhou, Zhejiang province, China September 2, 2019. Picture taken September 2, 2019. China Daily via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT. TPX IMAGES OF THE DAY - RC173452F240
Experts fear domestic troubles in manufacturing have yet to take full effect © Reuters

China’s economy last year grew at the lowest rate since 1990 while the country’s birth rate fell to a record low, highlighting the domestic challenges facing Beijing despite a truce in its painful trade war with the US.

Gross domestic product grew 6.1 per cent in 2019, disappointing analysts’ expectations and revealing an economy under pressure from weak consumer spending, rising unemployment and problems in the financial system.

The question looming over the world’s second-largest economy in 2020 is whether the damage of the trade dispute has largely run its course, or, as some experts fear, domestic troubles in banking, manufacturing and property have yet to take full effect.

“Despite the recent uptick in activity, we think it is premature to call the bottom of the current economic cycle,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

“This year could be the opposite of last year, where the external environment improves but domestic stimulus efforts aren’t enough to support higher growth . . . We’re particularly concerned about the property sector.”

China’s CSI 300 of Shanghai and Shenzhen-listed stocks closed on Friday up 0.14 per cent following the data. China’s onshore renminbi strengthened 0.1 per cent to Rmb6.8651 against the dollar, its strongest rate since July.

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The GDP figures, a closely watched gauge on economic health, come just two days after China and the US signed the first step in a trade agreement, putting on hold a nearly two-year trade war while leaving in place tariffs on hundreds of billions of dollars on Chinese imports.

Economists were cautiously optimistic about the pause in the dispute, with the so-called “phase one” deal likely to help improve negative sentiment among investors over the past year.

“It’s not how high the tariffs are; it’s about what the future trend [for the trade war] will be,” said Zhu Chaoping, JPMorgan Asset Management’s global market strategist. “The signing of the trade deal shows that it will not escalate from here and sentiment will improve.”

Economic figures released on Friday provide some evidence for a modest recovery.

Although GDP growth between October and December held at 6 per cent, lower than some economists had expected, several indicators showed that activity picked up in the final days of 2019.

Industrial production, for example, rose 6.9 per cent year on year in December, higher than market expectations. Fixed-asset investment rose 5.4 per cent for the whole of 2019, a sign that capital expenditure was picking up.

The slight increase in some areas of investment were not driven by the traditional powerhouses of growth, namely housing and manufacturing. Instead, parts of the new economy helped drive growth last month.

“Seems investment in services and high tech helped boost the number somewhat,” said Zhou Hao, senior emerging markets economist for Asia at Commerzbank.

Yet Friday’s data contained several concerning indicators for China’s economy in 2020, and for many years to come.

Manufacturing investment, a measure of the health of the factory sector, fell 3.1 per cent last year, a record low underlining the toll the trade war took on China in 2019.

Urban disposable income, which rose just 5 per cent last year, adjusted for inflation, notched another all-time low. China has sought for many years to reorient its economy towards consumption-driven development, away from the investment-heavy growth that has produced a huge pile of bad debt.

Perhaps more worrying, China’s birth rate dropped to a record low of 1.05 per cent in 2019, an ominous signal for a country expected to face a shortage of young and able workers to power its growth in the next two decades.

Demographic decline is a sensitive topic in China, given that it was exacerbated by the Communist party’s longstanding “one-child policy”, which has since been abolished.

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In China’s property sector, which has been plagued by concerns over its long-term health for more than a decade, housing sales by floor space fell 0.1 per cent in 2019.

The housing market comprises up to 25 per cent of China’s GDP, although that figure is contested. A downturn in the market almost certainly will hurt China’s economic prospects.

Ting Lu, Nomura International’s chief China economist, said that a correction in housing was just getting under way in smaller cities across China that, by his count, made up about 70 per cent of the country’ floor space.

“Some people believe that there could be a stabilisation or rebound in the property market this year,” he said.

“But my view is that the correction is not over yet, especially in the lower-tier cities. The correction only started in 2019.”

Additional reporting by Xinning Liu in Beijing and Alice Woodhouse in Hong Kong

Factories Are in a Funk
Despite what seems like an improving backdrop, manufacturers’ moods keep souring

By Justin Lahart

American manufacturers ought to have felt better last month. They didn’t, and that is worrisome.

The Institute for Supply Management said that its manufacturing index slipped to 47.2 in December—its lowest level since the last recession ended in June 2009—from November’s 48.1.

Anything below 50 indicates a contraction in manufacturing activity.

Economists had expected the index to move up to 49, and it is easy to see why. The stock market has been doing well and the trade fight between the U.S. and China has simmered down—both things that should have brightened the moods of manufacturers surveyed by the ISM.
But the report was almost uniformly dour, with subindexes for new orders, production and employment registering declines, and downbeat commentary from a wide range of industries.

Moreover, the report made no mention of Boeing effects, point out economists at Morgan Stanley. With suspension of 737 Max production starting this month, those will likely be a factor in future manufacturing reports.

A Boeing 737 MAX jet in Renton, Wash. Photo: Elaine Thompson/Associated Press

The message, then, is that despite the apparent improvements in the economic environment, manufacturing remained in a bad place as the year came to an end.

The headwinds the sector faces remain serious, with a strong dollar cutting into manufacturers’ ability to compete globally and economic weakness abroad further damping demand.

Moreover, the de-escalation of trade-fight rhetoric has so far left the tariffs the U.S. has imposed on China in place. Nor does it seem like the phase-one trade deal the U.S. and China have sketched out will provide more than incremental tariff relief for manufacturers.

There is still hope that, with a bit less uncertainty on the trade front and a bit better growth globally, manufacturers will have a better 2020 than 2019.

But the good times haven’t come, yet.

Geopolitical Futures’ Forecast for 2020

By: GPF Staff



A year is an arbitrary moment. It is short, its length determined by a planet’s rotation around a sun. It is merely a moment in a longer and more complex tale in which figures who tower for a time pass by unnoticed, when the triumphs and tragedies that rivet us all fade away, all but forgotten. In that sense, forecasting what happens next year is possible only if it is viewed as one frame of a much longer movie.

Our annual forecast must therefore be framed as such. For us, the story begins in 1991. Many things happened in and around that year: The Chinese economic miracle began its historic surge; the Japanese economic miracle failed; the Maastricht treaty was signed; Operation Desert Storm was launched; the Soviet Union collapsed.

Since 1492, when the first global system emerged, there was always a European power at its head. That changed in 1991. For the first time in 500 years, there was no European global power.

The only global power was the United States, native to both the Atlantic and Pacific oceans, the largest economy by far and the only global military power, dominated the international system.

At the same time, the center of gravity in Asia shifted from Japan to China. Europe attempted the creation of wide-ranging federation. The U.S. presence in Saudi Arabia fueled the rise of al-Qaida. The rest of the globe found itself caught up in these whirlwinds.

Thus emerged a new epoch. The world has been trying to adjust to the new normal set forth around 1991. The U.S. is still struggling with its new power, the Russians are trying to resurrect their past, the Chinese hope to avoid Japan’s fate, Europe is struggling to define what the European Union really means. And the defeat of the jihadists has led to the rise of Iran.

Which brings us to 2020. Some years are dominated by war, some by politics and some by economics. All three are always present, but in most years one dominates. 2020 will be dominated by economic competition, the further decay of the global free trade system, and the decline of the illusion of amiable interdependence.

As we anticipated in our 2019 forecast, a global economic slowdown is underway. This is a cyclical downturn that would normally not create major social, political and international forces. But because the 2008 economic crisis generated structural problems the international system has still yet to metabolize, the impact of this slowdown will generate substantially more non-economic consequences than would normally be expected.

Slowed economic growth limited the growth in appetites for imports, which struck hard at exporters of manufactured goods (China) and industrial minerals (Russia). And though they have stabilized the situation somewhat, they have yet to reverse it, so the pressure caused by the downturns is still aggravating social tensions.

This crisis manifests itself in a range of seemingly unrelated political confrontations, such as between the United States and China, Britain and the European Union, the U.S. and Iran, to say nothing of the internal instability in South America and the United States. Britain was confronted by an EU that was indifferent to the class that lost much after 2008. China confronted a world that consumed less, and competitors that produced more, placing China in a crisis where U.S. demands could not be accommodated.

The weakness of oil prices made Iran uniquely vulnerable to U.S. economic pressures, and Iran struck back by other means. All of these seem unconnected, but the connection is the massive economic shift that began in 2008, paused without being solved, and is now accelerating once again. These trends began before 2020 and will end long after 2020, but they will be the hallmark of the coming year.

As I explained in "The Next 100 Years," people tend to think the next moment will be the same as the prior one. At the height of the British Empire, it was inconceivable that British power was impermanent. But nations, like empires themselves, rise and fall. Our 2020 forecast is made in the context of this model.

George Friedman, chairman



1. Economic dysfunction will be the main driver of the international system in 2020. Economic stress does not simply flow from whether the economy grows or declines by a percent; it arises from shifts in the pattern of economic behavior. This in turn affects social realities and leads to political instability. Growth may continue, but a dramatic slowdown in growth can have significant consequences. We forecast a slowing global economy.

2. The most important dimension of the slowdown will be the increase in social instability, which was triggered by the 2008 financial crisis and ameliorated in recent years but will now accelerate. Internal tensions in many countries are already underway and will become more intense and less manageable in 2020.

3. Nations most vulnerable to the slowdown will be exporting nations. The countries that will be most destabilizing to the global system will be major economies that are dependent on exports. Germany and China are the most vulnerable and will have the greatest impact globally.

4. Trade issues will play a dominant role in generating international tensions.

Net importers will try to use the crisis not only to redefine their economic relations but also to shift political relations. Disputes, conflicts and even wars will pivot around importers’ use of their economic power and the weakness of exporters.

5. Downward pressure on production will reduce the price of primary commodities, increasing internal instability in countries depending on oil and other exports.

North America

1. The economic downturn will intensify the social crisis in the United States, compounding the ongoing political crisis.

2. The U.S. will be inward focused due to political forces, and its foreign policy will be driven by two principles: exploiting the problems of exporters, particularly China and Germany, and avoiding military actions.

3. U.S. strategy will continue to shift from military action to economic action in which the U.S. uses its power as a massive importer to shape the behavior of adversarial nations.

4. The United States’ major focus abroad will be on breaking the Iranian sphere of influence and defining its approach to rising Turkish power. The United States’ relationship with Asia for the moment will fall into a tense but primarily static mode.

5. The U.S. and global economic slowdowns will provoke a political crisis in Mexico.


1. The most important European issue in 2020 will be the degree of instability in the United Kingdom. Regardless of how Brexit resolves itself, the unity of the United Kingdom has been shaken to the core.

Aside from social tensions, the relationship between England, Scotland, Northern Ireland and even Wales will be on the table this year. This level of instability in a pillar of Europe will resonate. As the United Kingdom destabilizes, the destabilization will accelerate a centrifugal process on the Continent.

The United Kingdom will not fragment in 2020, but there will be a significant crisis of confidence within the EU concerning both Germany’s leadership and the management model that has emerged in Brussels.

2. The crisis in exports will strike the European Union in two ways.

First, Germany, which earns almost 50 percent of its gross domestic product from exports and counts the United States as its largest single customer, will see its export value contract, which will affect its GDP on a 2-to-1 basis.

This will intensify political instability. Second, other EU economies are deeply intertwined with the German value chain and German exports.

The EU is increasingly under political attack in these countries, and this will cause both an economic problem and, more important to the EU, a major political challenge for maintaining the EU.

3. The United Kingdom will move toward a trade agreement with the United States shortly after Brexit that will become entangled in the U.S. election but will ultimately be agreed on.


1. Russia has managed to maintain stability despite the massive downturn in oil prices.

However, there are significant constraints on the standard of living and government services outside the major cities.

The export crisis will strike Russia particularly sharply because its economy is largely driven by oil and gas exports.

This will increase dissatisfaction in Russia, but not to a point threatening the regime.

2. Russia’s foreign policy will continue to be on the surface aggressive but in practice very cautious.

Russia must assert its politico-military capabilities but not trigger a response from nations excessively frightened by them, particularly the United States.

It will thus employ a strategy of, say, using limited assets in non-critical areas to establish credibility without risk.

Russia will be active in areas like Venezuela and some Middle East countries.

It will be careful not to engage in areas of fundamental interest to the United States but will posture in other areas.

3. The United States is having a presidential election in 2020.

Meddling in the 2016 election resulted in the unification of both American political parties in an anti-Russian posture, along with increased U.S. sanctions.

The Russians will not attempt this again, as their strategy must be to divide U.S. opinion on Russia, not unite it.

Middle East

1. U.S. economic sanctions and the formation of an Israeli-Saudi-UAE coalition have challenged the Iranian move to the Mediterranean.

The United States wishes to avoid military confrontation, and therefore the most likely counter to Iran’s own counters will be covert operations by the anti-Iran coalition in Iraq, Syria and Lebanon.

These will be designed to destabilize the Iranian position while maintaining heightened pressure on Iran’s economy.

The pressure will create a political crisis in Iran as its expansion efforts and the domestic situation are weakened.

2. In the long term, Turkey is the dominant regional power.

Except for cross-border operations into northern Syria, it has thus far hesitated to undertake activities far beyond its border.

By the waning months of 2019, however, Turkish troops were again in northern Syria, drillships were venturing farther and farther out in the Eastern Mediterranean, and Ankara was offering to send troops to Libya and signing maritime delimitation deals with one of Libya’s rival governments.

The Turks will increase their assertiveness in 2020, with dramatic consequences for the region.

3. The vague alignment of Turkey and Russia will come to an end over Libya and Syria. On Libya, they find themselves on opposing sides. Russia is Syria’s ally, Turkey its enemy. Turkey does not trust Iran’s intentions to its south. Therefore, with fits and starts, Turkey will move closer to the United States.


1. China will struggle to maintain economic stability, which was imperiled even before the trade war with the U.S. Considering the state of the global economy, neither resolution of the trade war nor financial reforms will restore China’s economic power.

This will turn into an internal political struggle between competing interests.

The viability of China’s financial and banking system will be tested.

2. To compensate for the internal weakness, China will seek to stabilize the social system by increasing repression.

In addition, China will become more assertive militarily, particularly in the South China Sea but also the East China Sea as it tries to take advantage of the South Korea-Japan confrontation.

We expect quiet political tensions among the elite to grow.

3. The confrontation with China and North Korea will dramatically increase Japan’s drive to boost its military.

Although allied with the United States, Japan faces too many potential threats in the region not to build a more significant offensive capability.

South America

1. Russia will use political ties, supported by modest economic efforts, to regain more active influence in the Caribbean.

2. China will attempt to increase influence more generally in South America through limited economic cooperation complemented by increased political engagement.

3. The U.S.-Colombia relationship will be the priority relationship in the region for Washington.

4. Brazil will use its weight and dominance in Mercosur to get Argentina to fall in line with Brasilia’s desired trade policies.

There will likely be much resistance, and Brazil will then shift to questioning the utility of Mercosur to get Argentina to fall in line.

Australia/New Zealand

1. Australia will find itself in an increasingly unstable region, with the sea lanes on which it depends for trade increasingly at risk.

It will therefore have to maintain and enhance its relationship with the United States.

2. As China’s economy weakens, the need to align militarily with the United States will outweigh the desire to export to China.

3. The United Kingdom’s shift toward the U.S. will contribute to the creation of a trade bloc that will include Australia and other sources of industrial minerals.

The bloc will act as an alternative to the Chinese market, as China’s appetite for these minerals declines.


Our forecasts make sense only in the context of the broader post-1991 and post-2008 models.

They define the constraints and imperatives driving the components of the international system.

In most ways, the broader processes are more valuable guides to 2020 than the forecasts we outline here, simply because they tell us the general thrust of events and are less open to variation than the forecasts themselves.

Nevertheless, since the forecasts are embedded in the broader models, their general trajectory remains valid, even though variations in detail are likely.

Democracies are ill-suited to deal with climate change

It is tempting to say the problem is too abstract but the focus should be on the economy

Edward Luce
World Environment Inaction
© Matt Kenyon

Around my parents’ home on England’s south coast, global warming is proceeding so benignly that French champagne houses are buying up tracts of local hillsides. Trends like this have helped to temper the global north’s response to climate change over the last 30 years.

“Global warming is a terrible thing,” we tell ourselves. “But its main victims will tragically be in the poorer countries. Canadian mangoes anyone?”

Harrowing images of Australian bushfires and Californian wildfires should be blowing a hole in such complacency. But they also crystallise how hard it is for democracies to mobilise public action.

If images of Sydney enshrouded in smoke, or Napa Valley in flames, cannot arouse the voter’s imagination, what will?

Those hoping the world’s wealthiest countries will take more of a lead on climate change must confront three hard truths.

The first is that politicians struggle to look beyond the electoral cycle. It is hard enough for a government to invest in education, which can take years to show results. It is that much more difficult to take unpopular actions to reduce carbon dioxide output that might take generations to bear fruit, and even then go unrecognised.

In contrast to spending on education, investing in carbon reduction poses a free-rider problem.

If the US banned coal while Canada went ahead with its trans-mountain oil pipeline, the former would feel bamboozled. There is enough carbon in Canada’s oil sands to outweigh every virtuous action taken by the rest of the planet. It would take a very special country to do the right thing in the knowledge that selfish actions by its neighbours could render its sacrifices futile.

Consider Australia. Even if the Labor party had won last year’s general election, it would have had trouble making the case for radical action on climate change. Australia could cut its emissions to net zero and still suffer decades of record drought and fire.

As it happened, the Liberal party led by Scott Morrison, who mocks environmentalists, snatched victory and helped sabotage last month’s climate talks in Madrid. They broke up without agreeing on a global carbon-trading system chiefly because of objections from Australia and the US.

The second obstacle to climate change action is uncertainty. It is impossible to establish that any single disaster is entirely man-made. Despite the summer fires in Siberia, heat deaths in Pakistan and two once-in-a-century storms hitting Houston in two years, natural disasters occurred before the era of climate change. Scientists can give high probabilities that climate change is real but rarely certainty.

Even our vocabulary occludes clear thought. In the early 2000s, pollster Frank Luntz advised the Republicans to drop “global warming” in favour of “climate change” to drain it of urgency.

The latter sounded more like you were “going from Pittsburgh to Fort Lauderdale”, he wrote.

Perhaps green activists should take a leaf out of Mr Luntz’s book and stop saying “natural” before “disaster”. There is nothing natural about rapidly receding polar ice caps. Scientists should also do a better job of explaining that science rarely deals in absolutes. It is not certain that you will fall sick if you drink tap water in a cholera zone.

But you would be 100 per cent foolish to forgo the vaccine. Likewise, we should take a pinch of salt every time a politician raises statistical doubts. Climate change denial has largely been replaced with talk about scientific uncertainties.

The third obstacle is — how to put it? — human nature.

Few people want to confront a massive problem when there are petty scores to settle. This works on a global level as well as a personal one. I have spoken to people who are more exercised by Greta Thunberg’s mannerisms than with the content of her message. They find the fact that a 17-year-old girl is lecturing grown-ups on climate change more grating than the likely extinction of the Great Barrier Reef. We filter what we want to see.

Fox News viewers hear very little about the science that links climate change to Australia’s bush fires. Had a transgender activist started a fire one-thousandth the size, it would no doubt be dominating conservative airwaves. Yet Fox chairman Rupert Murdoch’s Bel Air home came close to being burnt by one of California’s 2017 fires.

How can we stave off fatalism?

In The Uninhabitable Earth, David Wallace-Wells says the world has pumped out more carbon dioxide since the 1992 Earth Summit in Rio de Janeiro than in the whole of preceding human history.

Meanwhile, Donald Trump, the US president, is more concerned about wind energy.

Last month he railed against the “tremendous fumes” generated when turbines are manufactured and said they “look like hell”.

If we want action, the best response is to talk about the economy. The age of abstract climate change is over. The 2018 fires cost California an estimated $400bn, according to Accuweather.

That is more than half the annual US defence budget. Even before the latest fires, Deloitte estimated that the economic costs to Australia of natural disasters would rise to A$39bn ($27bn) a year by 2050, equivalent to almost 2 per cent of the country’s current gross domestic product.

No amount of English champagne could make up for that.

The Dollar Is Even More Important Than You Know

Some official financial statistics don’t account for the use of foreign-exchange derivatives to create synthetic greenbacks

By Mike Bird

The growth of foreign-exchange swaps leaves more of what is effectively dollar debt hiding off balance sheets. Photo: Andrew Harrer/Bloomberg News

The share of the Japanese yen in global currency reserves hit a multidecade high last year.

Paradoxically, that may be a symptom of the world’s ravenous appetite for U.S. dollars.

According to International Monetary Fund data released at the end of the year, yen-denominated reserves reached 5.6% of the world’s total in the third quarter of 2019, the highest amount since the late 1990s.

But part of the reason for the uptick in holdings isn’t that investors have fallen in love with Japan. There is effectively money lying at the side of the road for investors who want to swap those yen into dollars.

An instrument called a cross-currency basis swap lets an investor holding a Japanese government bond swap the yen-denominated interest and principal for a dollar-denominated interest and principal received by their counterparty.

Simply put, buying short-term Japanese government debt and swapping it into dollars has provided greater returns than buying U.S. Treasurys of equivalent maturity.

Before the financial crisis, these persistent opportunities rarely existed: A U.S. Treasury bond would yield the same amount as a Japanese government bond swapped into U.S. dollars, as supply and demand changed the prices of the swaps.

But tighter regulations on bank balance sheets postcrisis have changed that, limiting the ability of financiers to arbitrage away the difference. The most common trade is in short-term bonds because the maturity of swaps is typically short too.

Unsurprisingly, foreign investors have piled into short-term Japanese government bonds.

Bills issued with a maturity of one year or less have shrunk as a portion of Japan’s overall debt, but the share owned by foreigners has risen from about 5% at the turn of the century to more than two-thirds today.

Most central banks don’t break down their holdings of foreign-exchange derivatives. But Goldman Sachs analysts note that the Reserve Bank of Australia does: It records 40.36 billion Australian dollars (US$28.04 billion) in yen-denominated assets, as of June 2019.

After accounting for its derivative holdings, its net yen exposure falls to just A$2.61 billion, while its U.S. dollar exposure more than doubles.

So though the data suggests that the yen’s share of global reserves is growing, and the U.S. dollar share has declined, it’s more difficult to tell for sure what’s happening. It’s likely that much of the accumulation of yen reserves masks synthetic U.S. dollar holdings.

The growth in foreign ownership of short-term Japanese debt is a particularly obvious form of financial engineering, but it isn’t the only source of yield pickups. Investors who really want dollars can construct a higher-yielding asset by pairing many European bonds with a cross-currency basis swap too.

The use of outright foreign-exchange forwards and swaps for dollars has ballooned in the past decade. The notional amount outstanding has risen 64% since its pre-financial crisis peak, to about $53 trillion in the first half of 2019.

The growth of foreign-exchange swaps leaves more of what is effectively dollar debt hiding off balance sheets around the world.

So when you hear about the potential decline of the greenback in international finance, remember the share that’s hidden in plain sight.