The Conference Board Leading Economic Indicator (LEI) for China suggests that growth momentum was weak in January-February, but it didn’t worsen compared to December. Given the potential data distortions due to the Chinese New Year holiday, it is not yet certain if the economy has reached a cyclical bottom.
China’s official 2019 GDP target was set last month at the NPC at a range of 6.0 to 6.5 percent. This new setting is notable in that it is lower than 2018’s target of “about 6.5 percent”. The reduced growth target indicates that policy makers are willing to tolerate further growth moderation and resist the temptation to implement large-scale stimulus to put Chinese growth on a temporary upward trajectory. But, given the downward trends across investment, consumption and exports, we believe that additional stimulus programs will be needed to ensure that the economy does not ‘over slow’. Official statements regarding higher government spending and a larger annual deficit-to-GDP ratio indicate that China’s leadership is cognizant of these challenges.