China's outlook, and the implications for Africa and South Africa specifically
Jeremy Stevens
Introduction
An economic stabilization in China likely to be short-lived: GDP growth likely slipping to a three-decade low; a range of material downside risks still testing the agility of policymakers in Beijing and requiring careful navigation; further breakdown in relations with the US; the Phase One trade deal over-committing China and detracting from China’s other trading partners. All this comes against the backdrop of an ongoing structural slowdown, and the restructuring and rebalancing of China’s economy.
Welcome to 2020; the year of the rat. Like China, we are skeptical of economic growth improving in 2020 for developed countries, and risk assets that are supported by abundant liquidity may tumble due to high asset-price valuations, rising global debt, or due to whatever the shocks may be.
Faced with all this, African nations have doubled down on regional integration, thereby creating a continental free trade area. This has the potential to make African markets more alluring to China – Africa’s most consequential commercial partner but one whose internal adjustments are still yet to be fully metabolized by African countries.
We argue that the next phase of ties between China and South Africa specifically must more forcefully and single-mindedly prioritize tactics for further industrialization, job creation, and technology transfer through Chinese investment in manufacturing. To this end, they must shape ties to support South African growth and development, and position South Africa as an engine for intra-Africa trade. South Africa therefore must make good on its commitment to improving the ease of doing business in SA as well as its competitiveness.
A China perspective
We aren’t convinced the Chinese economy has bottomed out. Granted, the data is much improved since October 2019, with a plethora of monthly macroeconomic data implying that momentum loss seems suspended. Nevertheless, economic growth in the world’s second-largest economy is still likely to drop below 6% in 2020, which would be the first time since 1990. That's down from 6.1% in 2019 and 6.6% in 2018, marking a third straight annual slowdown. And, of course, GDP growth could fall lower low in a worst-case scenario: think trade talks break down again; the ongoing liquidity challenges facing smaller banks fail to be ring-fenced; a large enough share of corporates struggle to meet their debt obligations; and so on.
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