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Is China’s Lower GDP Target a Trade War Effect?

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China’s 2019 growth outlook

At its annual parliamentary meeting, which started March 5, China set its annual economic growth target at 6.0%–6.5%. The target is slightly lower than the 6.6% growth recorded by its economy last year, which was its weakest since 1990. This year’s low growth target has many reasons, including high debt in the system and the ongoing US (SPY) (IVV) trade issues.

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Manufacturing activity

China’s (BABA) (BIDU) manufacturing activity fell for a third straight month in February. The Caixin/Markit Manufacturing Purchasing Managers’ Index stayed below 50, the level that separates expansion from contraction. New export orders and business optimism also fell in February as companies remained concerned about US-China trade tensions.

China’s lower growth target

Given the current issues facing the country, the lowering of its economic growth target hardly comes as a surprise. The World Bank also lowered China’s (FXI) growth outlook in January, saying, “Growth in China is expected to slow to 6.2 percent this year as domestic and external rebalancing continue.” The tariffs imposed by the United States on Chinese goods are set to come into full force in the first half of this year, which could shave off some economic growth. China, however, is not alone in facing trade woes. Amazon (AMZN), Microsoft (MSFT), Netflix (NFLX), Facebook (FB), NVIDIA (NVDA), and Alphabet (GOOG) are also being impacted by the trade friction between the world’s two largest economies. To offset the impact of US tariffs and kickstart China’s slowing economy, authorities are undertaking several stimulus measures, which we’ll discuss in more detail next.

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