China's Slowing Economic Growth Negative for Indonesia
The weakening growth trend of the Chinese economy may not have ended yet. Despite the nation's gross domestic product (GDP) growth rebounding to 6.9 percent year-on-year (y/y) in 2017, its economy is expected to cool in 2018 as a government-led crackdown on debt risks and factory pollution drags on overall activity in the world's second-largest economy. This is a problem for Indonesia as well because China is Indonesia's biggest trading partner.
It is estimated that for each (additional) 1 percent GDP growth of China, the Indonesian economy is lifted 0.1 percent due to growing exports from Indonesia to China. Based on data from Statistics Indonesia (BPS), non-oil & gas exports to China reached USD $21.32 billion in full-year 2017, up 41 percent (y/y) from the preceding year, partly on the back of the rebounding Chinese economy last year and strengthening commodity prices.
However, China's economic growth is expected to slow to the range of 6.3 - 6.5 percent (y/y) in 2018 - the Year of the Dog in Chinese astrology - which would make it the country's lowest annual GDP growth rate since 1990.
Recently, the Deutsche Bank released a report - 2018 China Economic Outlook - in which it states that, after a good 2017, China will be facing several structural challenges in the five years ahead.
The year 2017 was a good year for the Chinese economy due to strong consumer and service-sector growth, while the nation's property market boom continued in tier 3 cities. The government's supply-side reforms made a positive impact reflected by improved industrial profits. Meanwhile, the global economic environment was also conducive, with strong growth in Japan and Europe. Market volatility remained under control, while China's currency (renminbi) was strong against the weak US dollar.
However, Deutsche Bank sees several challenges for China in the next five years. Firstly, looming tightening monetary policies around the globe (including interest rate hikes), specifically in the USA, European Union and Japan. This may mean that China's central bank also needs to implement a tighter monetary policy. Secondly, China's labor force is shrinking (from 787 million individuals in 2016 to 785.5 million in 2017), while demographically speaking the population is ageing, hence implying the availability of less human resources for the industry sector). Thirdly, there is limited investment in the nation's property and infrastructure, hence their roles as growth drivers are being curtailed.
Meanwhile, the economy of China is also still in its shift from investment-driven to consumption-driven. However, the Deutsche Bank expect to see medium-to-high end consumption in China emerging as a new growth engine in 2018.
Economic Data China - GDP & Inflation:
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |
| GDP (annual % growth) |
7.9 | 7.8 | 7.3 | 6.9 | 6.7 | 6.9 |
| Inflation (annual % change) |
2.6 | 2.9 | 1.5 | 1.4 | 2.0 | 1.8 |