China’s growth is expected to moderate to 5.6 percent in 2020.

  • The impact of COVID-19 on growth is expected to be short-lived and the economy will rebound strongly.

But a possible prolonged COVID-19 outbreak would pose a challenge.

  • Fiscal, monetary and macro-prudential polices are employed to bolster growth and mitigate risk.


SINGAPORE, March 4, 2020 – The Chinese economy is expected to remain resilient in the face of challenging conditions stemming from a global economic slowdown, the U.S.-China trade tensions, the country’s financial deleveraging process, and the recent COVID-19 outbreak.

The authorities have taken effective measures to contain the outbreak, and at the same time, employing fiscal and monetary policies to mitigate the impact on the economy. These efforts are expected to support growth and employment, and maintain financial stability. This is according to the 2019 Annual Consultation Report on China published today by The ASEAN+3 Macroeconomic Research Office (AMRO).

AMRO projects the 2020 growth rate to moderate to 5.6 percent from 6.1 percent in 2019, with a sharp but short-lived downturn due to the outbreak of COVID-19. Consequently, while there may be disruption to businesses in the short run, production is expected to recover once the outbreak is contained and brought under control. Despite a sharp rise in food prices, inflation rate is expected to remain contained.

New-term risks merit attention Although the impact from trade tensions have moderated with the successful conclusion of Phase One deal with the U.S., the outbreak of COVID-19 has become a challenge. If not contained quickly, it could have a major impact on growth in 2020. Other sources of risks include a global economic slowdown, a re-escalation of trade tensions, and a further increase in corporate debt.

The authorities have employed fiscal, monetary and macro-prudential policies to bolster the economy and mitigate the above risks.

The comprehensive measures since 2019 include (1) a more accommodative fiscal policy; (2) easing of  monetary and liquidity conditions; (3) targeted credit to small and medium-sized enterprises (SMEs); (4) a continued reduction in leverage and (5) maintenance of tight macro-prudential policy settings.

A strong fiscal policy package has helped boost the economy and avert a sharp slowdown due to the trade tensions. Its impact on consumption and investment has become more significant since the later part of 2019. AMRO estimates that the tax and fee cuts could lift growth by about 0.5 percentage point over a one-year period.

Since early 2020, the authorities have taken unprecedented measures to provide medical care, contain the transmission of COVID-19, and mitigate the impact of the outbreak on growth. These include measures to support vulnerable groups, particularly SMEs and workers in the affected areas, and to eventually ensure a rapid resumption of production.

The authorities should be mindful of the impact of moderating growth on small but highly-interconnected financial institutions, while pressing ahead with the deleveraging process and a continued move to enhance banks’ risk management. AMRO welcomes the government’s efforts in strengthening the banks’ capital and risk management practices.

In AMRO’s view, the authorities’ current monetary policy mix is appropriate but could be more accommodative if the growth outlook weakens further. AMRO supports the People’s Bank of China’s efforts in reinforcing the role of the loan prime rate as the benchmark for banks’ lending rates.

AMRO supports the proactive fiscal policy and the authorities’ decision to issue a greater amount of special bonds to finance productive infrastructure investment. Authorities should also monitor fiscal risks in regions with low local government debt repayment capacity.

In the longer term, economic policies should promote China’s transformation into an innovative and technology-driven economy which is sustainable and environmentally friendly. At the same time, China should further reform the state-owned enterprises to improve their efficiency and profitability.

AMRO supports the authorities’ commitments to uphold the rules-based multilateral trading system, strengthen the intellectual property rights protection framework, and accelerate the opening up of the economy. The authorities are encouraged to upgrade China’s healthcare and social security systems in view of rising healthcare needs and a rapidly ageing population.

This report was prepared based on AMRO’s Annual Consultation Visit to China from July 8 to 16, 2019, with data available up to end August 2019.

About AMRO and AMRO’s Annual Consultation Report:

The ASEAN+3 Macroeconomic Research Office (AMRO) is an international organization established to contribute towards securing macroeconomic and financial stability of the ASEAN+3 region, which includes 10 members of the Association of Southeast Asian Nations (ASEAN) and China; Hong Kong, China; Japan; and Korea. AMRO’s mandate is to conduct macroeconomic surveillance, support the implementation of the regional financial arrangement, the Chiang Mai Initiative Multilateralisation (CMIM), and provide technical assistance to the members.

The Annual Consultation Report was prepared in fulfilment of AMRO’s mandate. AMRO is committed to monitoring, analyzing and reporting to its members on their macroeconomic status and financial soundness. It also helps identify relevant risks and vulnerabilities, and assists members, if requested, in the timely formulation of policy recommendations to mitigate such risks.