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China GDP growth headed for 5.2% in Q3 rebound: Nikkei survey

Economists split on whether Biden election win would ease US-China tensions

Shoppers in Shanghai on Sept. 24: China's growing middle class could help the country's economy recover from the coronavirus pandemic.   © Reuters

HONG KONG -- China's economy likely expanded 5.2% in the July-September quarter as a policy-led recovery continues, with growth expected to accelerate from 3.2% during the April-June period, a survey by Nikkei and Nikkei Quick News found.

Though some economists express optimism that tariffs on Chinese goods will be reduced if former Vice President Joe Biden wins the American presidential election next month, others think the U.S.-China rivalry will continue regardless of the result of the vote.

China has largely contained the spread of the coronavirus, and the economy quickly returned to growth in the April-June period. The survey of 29 economists revealed that most expect July-September growth to expand further, with estimates for the third quarter ranging from 2.5% to 7.1%.

Ricky Choi, principal economist at Bank of China (Hong Kong), predicted that China's gross domestic product increased by 5.1% in the third quarter. The country's management of the COVID-19 outbreak likely will drive a rebound in consumption and production activities, he said.

"China is likely to be the only country to reach pre-crisis [economic] level by the end of 2020," said Sean Taylor, chief investment officer for Asia-Pacific at DWS. Its economy already has reached 80% of the level before the pandemic, he said.

Francoise Huang, senior economist for Asia-Pacific at Euler Hermes, was more optimistic. She forecast 5.5% growth for the third quarter, saying that China's exports have performed better than expected in the past few months due to strong external demand for Chinese medical products amid the pandemic.

"On the domestic side, while the recovery in consumption remains sluggish, the more policy-driven areas of the economy are proving dynamic -- particularly construction and infrastructure investment," she said.

Economists in the survey also estimated China's full-year GDP growth at 2.2%, up from a forecast of 1.6% in a survey conducted during June. They projected 7.8% growth for 2021 and 5.4% for 2022.

The economists generally believed that a victory by President Donald Trump in the November election would maintain or even intensify the heightened U.S.-China tensions over the next four years. Some forecast that the U.S. would cut tariffs on Chinese goods if Biden became president, likely benefiting China's exports in 2021.

Ken Chen, Chinese economy analyst at KGI Asia, thinks Biden also might withdraw some sanctions on Chinese tech companies if he wins, which would allow China's manufacturing industry to recover with more investments.

Christina Zhu, an economist at Moody's Analytics, agreed that a Biden win could signal a return to a multilateral approach in addressing trade issues through the World Trade Organization and other international frameworks, leading to a reduction in tariffs.

"Lower tariffs might not occur immediately, but over time as other issues are resolved through negotiations, tariffs would likely be reduced," she said.

But not all the economists agreed that a Biden victory would benefit China's economy.

Tommy Wu, lead economist at Oxford Economics, said Biden favors other forms of protectionism such as providing subsidies for American companies to reshore production activities to the U.S. or penalizing them for moving jobs overseas.

"Also, a Biden administration will very likely work closely with the U.S.'s traditional allies, which will probably be even less favorable for China," Wu said.

Others think American policy toward China will remain tense regardless of the election outcome.

"It is difficult for the deteriorating U.S.-China relationship to achieve fundamental improvement regardless of the election result," said Cheng Shi, chief economist at ICBC International. "In the long run, it is the consensus among U.S. politicians to maintain the superiority of the U.S. and contain the rise of China."

Kevin Lai, chief economist of Asia ex-Japan at Daiwa Capital Markets, cited a sharp uptick in the number of Americans who view China unfavorably, saying this means U.S. politicians likely will take a hard-line stance toward Beijing.

"We believe U.S. pressures on China are likely to intensify regardless of who wins the elections," he said. "U.S. and China are set for a decoupling, in our view."

Economists also have mixed views on whether wariness abroad toward Chinese technology companies will undermine China's growth. Most of them agreed it is likely to harm the nation's technology industry in the short term, but some were optimistic that the tensions could stimulate innovation and let the industry become more self-reliant in the long run.

Aidan Yao, senior emerging Asia economist at AXA Investment Managers, said the tensions might force China to internalize research and development, localize growth and emphasize domestic innovation in the long term.

"Tech decoupling will be a cost to the world," he said. "Whether China can minimize this cost depends on its success to indigenize innovation and explore the full potential of its domestic market."

The Chinese Communist Party discusses the nation's next five-year economic plan this month at the fifth plenary session of the 19th Central Committee. The economists in the Nikkei survey predicted that the meeting could result in an average growth target for the next five years of 5.5%.

The economists think the session will highlight the formation of China's new "dual circulation" development pattern, with "internal circulation" being the main subject and "external circulation" complementing it.

"The global economy has been hit hard by the epidemic," said Kenny Wen, wealth management strategist at Everbright Sun Hung Kai. "Adding to the escalating unilateralism, it is difficult to support China's economic growth solely by exports."

China's growing middle class could play a powerful role in fueling the country's economic recovery, Wen said.

"Enhancing domestic demand and strengthening the proportion of localization in some industries can mitigate the influence from the external economy," he said.

Iris Pang, chief economist for Greater China at ING Bank, also said Beijing may be "passive" in controlling the foreign circulation due to uncertainties involving COVID-19 outside the country.

"As such, China will continue to rely more on the internal circulation for growth," she said.

The economists who responded to the survey: Arjen van Dijkhuizen, senior economist, ABN AMRO Bank; Aidan Yao, senior emerging Asia economist, AXA Investment Managers; Ricky Choi, principal economist, Bank of China (Hong Kong); Paul Tang, chief economist, Bank of East Asia; Jian Chang, chief China economist, Barclays Asia Pacific; Chen Xingdong, chief China economist, BNP Paribas; Qun Liao, chief economist, China CITIC Bank International; Kevin Lai, chief economist, Asia ex-Japan, Daiwa Capital Markets; Chris Leung, chief China economist, DBS Group Research; Sean Taylor, chief investment officer, Asia Pacific, DWS; Francoise Huang, senior economist for Asia-Pacific, Euler Hermes; Kenny Wen, wealth management strategist, Everbright Sun Hung Kai; Thomas Shik, chief economist and head of economic research, Hang Seng Bank; Qu Hongbin, chief China economist, HSBC; Cheng Shi, chief economist, ICBC International; Iris Pang, chief economist, Greater China, ING Bank; Shen Jianguang, chief economist, JD Digits; Ken Chen, Chinese economy analyst, KGI Asia; Larry Hu, head of China economics, Macquarie; Mihoko Hosokawa, research executive, Mizuho Bank (China); Christina Zhu, economist, Moody's Analytics; Robin Xing, chief China economist, Morgan Stanley; Fan Xiaochen, director of the Economic Research Office (Hong Kong), MUFG Bank; Ting Lu, chief China economist, Nomura; Tommy Wu, lead economist, Oxford Economics; Shaun Roache, Asia-Pacific chief economist, S&P Global Ratings; Shuang Ding, chief economist, Greater China and North Asia, Standard Chartered Bank; Tetsuji Sano, chief Asia economist, Asia Research Center, Sumitomo Mitsui DS Asset Management; Wang Tao, head of China economic research, UBS

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