China's economy grew 6.6 percent in 2018, declining substantially from the 6.8 percent pace recorded in 2017. Its economy has weakened steadily, especially during 4Q18 to 6.4 percent, representing the lowest growth in 28 years. The sharp decline in 4Q18 economic performance was attributable chiefly to a decelerated export growth of 4.3 percent YoY against the 11.1 percent pace reported for 3Q18. China's disappointing export performance was clearly a result of the protracted trade war, which has crippled its business sector to make profit. In November 2018, profit in the Chinese business sector contracted for the first time in over three years at only 1.8 percent despite attempts by the government to sustain economic growth through numerous policy tools, including liquidity injection via financial institutions and easing control of local government investment. A slower growth in M1 at only 1.5 percent in December also shows that the effectiveness of China's monetary policy has become increasingly restricted and liquidity injection into the economic system was intended only to maintain financial costs. As a result, private investment will continue to be subdued ahead. In addition, the slowing GDP growth seen in the tertiary industry signals that domestic demand has began to decline.
Looking into 2019, it is expected that China's GDP growth will slow at an accelerated pace, in particular the external sector. KResearch projects that China's export growth may slip to 3.0-5.0 percent, against the 9.9 percent pace seen in 2018. This coupled with ebbing purchase orders and hefty corporate debt may drag its private investment down. Nevertheless, we expect that the Chinese government will continue to introduce new stimulus measures in order to achieve its economic growth target of 6.0-6.5 percent. Given this, KResearch views that China may report a slower economic growth of 6.2 percent, or within a range of 6.0-6.4 percent. However, if China is able to achieve a trade deal with the US within 1H19, its GDP growth may lean toward the upper band of our projection.