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China Economic growth is projected to decline to 5.5% in 2021 as the economy continues to rebalance and trade tensions remain high. In 2019, frontloading of exports has helped to support activity, but increased tariffs will constrain growth going forward. Imports will slow further as demand for imported inputs eases, resulting in an increase in the current account surplus. Overall investment growth is no longer slowing thanks to government infrastructure projects and still robust real estate investment, although manufacturing investment growth is weak. Private consumption will grow steadily on the back of relatively strong disposable income gains. Inflation is easing, notwithstanding soaring prices of some consumption goods. Monetary conditions were tightened by restrictions on shadow banking but are now being eased to support economic activity. Broad-based cuts in minimum reserve requirements have been supplemented with a new pricing mechanism for the loan prime rate and a slight cut in the medium-term lending facility rate aiming at reducing the cost of borrowing. Fiscal policy, with a number of tax cuts, will remain supportive of consumption amid deteriorating consumer confidence. Infrastructure investment will be robust, and project financing is expected to benefit from relaxed own fund requirements. Growth remains robust Growth has weakened amid escalating trade tensions and global uncertainties, but frontloading of exports in the second half of 2019 ahead of expected new rounds of tariff increases is supporting industrial production. The rebalancing from investment to consumption has reduced the demand for imported capital goods and raw materials. Greater domestic production of inputs is also contributing to weaker import demand. As a result, the current account surplus has increased. Consumption has remained robust, thanks to steadily rising disposable incomes. Infrastructure investment has bottomed out thanks to the increase of special bond quotas and the easing of rules for enterprise bond issuance. Business investment growth has remained stable, in particular in services, though manufacturing investment growth has slowed significantly. Real estate investment growth has been stable on the back of strong demand for private housing and continuing large-scale reconstruction of shantytowns. New housing starts, however, are moderating, pointing to weaker growth of residential investment in the future. This could potentially reduce vacancy rates but could also inflate the property bubble in cities where demand is robust.
OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION Š OECD 2019