China's economy may not overtake the US, but a Trump presidency would still help Beijing: former IMF official

China's economy may not overtake the US, but a Trump presidency would still help Beijing: former IMF official
Former US President Donald Trump and China's leader Xi Jinping on November 9, 2017.Fred Dufour/AFP/Getty Images
  • China will find it hard to sustain an economic growth rate of 4% to 5% in the next few years, economist Eswar Prasad told Nikkei.
  • Beijing is moving in to support China's flagging economy and market meltdown.

China is taking steps to support its economy and stock markets, but there are limits to what can be achieved, said economist Eswar Prasad.

"There is a limit to how far firms and households can go if they remain bearish," Prasad, a professor at Cornell University and a former International Monetary Fund official in charge of China, told Nikkei in an interview published on Monday.

Stock markets in China and Hong Kong have accelerated losses into 2024 after shedding trillions of dollars since 2021. Beijing has pulled more than a dozen moves since January to try to stabilize a stock market rout and support downbeat property market demand.

On Wednesday, benchmark stock indices in China and Hong Kong rose on optimism over Beijing's increasing number of support measures. However, they are all still lower year to date.

"Chinese government moves to restore private-sector confidence and boost the economy still lack a broad reform framework," Prasad told Nikkei, echoing sentiments expressed by the Rhodium Group researchers in a report that stressed the need for structural economic reforms.


China has been unable to sustain a growth spurt more than a year after lifting COVID-19 lockdowns, denting investor confidence in the health of the world's second-largest economy. It's up against multiple challenges, including a property crisis, deflationary pressure, and a demographic crisis.

Due to these "fragilities," China will find it hard to sustain a growth rate of even 4% to 5% in the next few years, said Prasad.

China hasn't announced its national growth target for this year, but policy insiders have told Reuters they expect Beijing to keep its 5% growth target for this year.

China recorded 5.2% in GDP growth in 2023, beating its COVID-hit performance of 3% in 2022. However, it was still one of the worst showings for the economy in three decades.

"The likelihood of the prediction that China's GDP will one day overtake that of the US is declining," Prasad added to Nikkei.


But a Trump presidency could help China

Even though Prasad doesn't have a rosy outlook for China, he thinks the East Asian giant could still gain economic and geopolitical clout should Donald Trump win a second US presidency.

This is because Trump is likely to ratchet up trade protectionism, causing fragmentation in the trade and financial sectors, Prasad told Nikkei. On Sunday, Trump said he will slap tariffs of over 60% on Chinese goods if he wins the presidential election in November.

"Trump is likely to become more isolationist after his return to power," which would lead to the US losing its leadership role in major international organizations and in addressing global issues like the climate crisis, said Prasad.

"China will once again have the opportunity to strengthen its economic and geopolitical influence in the world, especially in Asia," he said.