China's growth outlook bright even beyond 2020

Despite the US-triggered trade war, China's economic prospects remain in line with 2019 expectations and are likely to continue in 2020 thanks to deleveraging and structural reforms. A year ago, I predicted that China could achieve 6.2 percent GDP growth in 2019 if policymakers sustained higher-quality growth while reducing debt accumulation. This scenario has proven pretty valid so far.

Recent international headlines have projected "sub-6 percent growth" in 2020 for China, assuming weakened consumption, cautious private investment and shrinking exports. In reality, China's slowing growth is in line with long-term expectations. Even half a decade ago, the International Monetary Fund said China's annual growth would be 6.1-6.2 percent by 2020. The minor deviation can be attributed to the trade war.

In 2020, the final figure may likely be 5.8-6 percent, though.

But let's go beyond the short term to see how the 2020 economic prospects are likely to support China's more vital medium-and long-term objectives－deleveraging and structural reforms in 2020-24 and rebalancing until 2030.

If the Chinese government were to ignore its commitment to poverty eradication and improving people's living standards, it could achieve more rapid growth. But policymakers cannot accept too much deceleration either, as efforts to double people's living standards－as measured by per capita GDP with purchasing power parity－between 2010 and 2020 require growth of about 6.1 percent in 2019-20.

Assuming the international situation remains peaceful and the trade war ends, China's growth may decline from the 2007 peak of 14.2 percent to 5.5 percent by 2024. In the 2000s, China's growth accelerated, while living standards almost doubled. In the 2010s, China's growth declined yet its living standards doubled again. And if things go right, this trend may continue.

In contrast, living standards in the US increased by only 6 percent in the 2000s, and 14 percent in the 2010s while growth halved from 3-4 percent to 1-2 percent. Here's the inconvenient truth: While the Chinese leadership continues to foster the expansion of middle-income consumers, the US has done little to arrest the stagnation of the middle-income group since the 1970s.

The Chinese government has also used fiscal support and monetary easing to minimize the collateral damage of US protectionism on the Chinese economy. That's why public debt has increased (64 percent of GDP). But unlike major Western economies, China continues to deleverage. It is also engaging in broad structural reforms despite the US trade war. And, unlike Western economies, it still has significant long-term growth potential.

Since China's growth continues to shift away from investment and net exports toward consumption and innovation, the corrosive impact of protectionism will be reduced over time. In turn, rebalancing continues, as evidenced by record retail sales during the October Golden Week and Singles Day (Nov 11).

But despite periods of optimism, trade talks between Washington and Beijing remain inconclusive. While negotiations on a "phase one" trade deal are focused on agriculture, additional core disputes remain unresolved, including disagreements on intellectual property rights and technology, and financial market accessibility.

The US trade war is likely to hinge on three probable scenarios. In the "managed trade war" scenario, the two sides agree on the "phase one" deal and a realistic long-term negotiation trajectory on broader core disputes, brightening global economic prospects by boosting investor and consumer confidence worldwide.

In the "technology war" scenario, the two sides agree on some sort of a "phase one" deal, but not on a long-term negotiation trajectory. And a brief trade truce precedes a longer-term trade war in which the White House evokes "national security reasons" to use anti-competition tools in order to undermine China's 5G success and Huawei's expansion. This scenario would result in downgraded outlooks for all major economies.

In the "hybrid war" scenario, "phase one" deal is undermined and long-term negotiation trajectory not achieved; tariffs and protectionism are extended to foreign investment and the global value chains. This scenario would have the worst consequences for the world, because the US would resort to economic, political, military and other means to contain China's rise, and China would have to respond.

Thanks to US trade policy mistakes－the worst in the postwar era－the global economy is now experiencing a "synchronized slowdown", as the IMF has warned. But worse lies ahead if the "managed trade war" scenario is not realized.