BEIJING -- China's economic slowdown is a "natural" consequence of years of breakneck growth, Zhu Min, a former deputy chief of the International Monetary Fund, told The Nikkei.

The world's second largest economy is struggling with deceleration and an acrimonious trade fight that has economists and policymakers around the world asking whether the country's trade-driven growth can return to a clear upward trajectory.

Zhu, the former deputy governor of the People's Bank of China and now chairman of the National Institute of Financial Research at Tsinghua University, says a further escalation in China's trade war with the U.S. could deliver a heavy blow to the prospects of the world's second largest economy.

Whether the U.S. slaps additional tariffs on imports from China will be "the core issue going forward," he said.

A growing number of economists are bearish about China's economic outlook, but Zhu remains confident.

"Since the size of China's economy has become this big," he said, "it is natural for the speed of its growth to slow down."

"The U.S. will take a massive hit" if it further raises tariffs on Chinese goods, more than 50% of which Zhu Min says America can find nowhere else. (Photo by Taro Yokosawa)

Zhu refused to add his voice to the mounting pessimism hanging over the Chinese economy.

China's economy expanded with great strength for three or four decades, he noted, adding that maintaining double-digit growth for an even longer period is not possible. "Japan and South Korea once went through the same experience," he said.

The main factor behind the current slowdown, he said, is the Chinese government's push to "cut excessive production capacity and indebtedness in the past two years."

These efforts have produced significant results, especially in the steel, aluminum and glass manufacturing sectors, he said.

"It was inevitable," he added, "that this process would put downward pressure on the economy."

The Chinese government is shooting for gross domestic product growth of 6% to 6.5% for 2019. Zhu said he believes 6.3% to 6.5% GDP is achievable. "These are by no means bad numbers," he said, forecasting stable 6.3% growth for the next several years.

There is one big caveat -- that the prolonged trade tussle with the U.S. significantly affects China's prospects. So far, Zhu said, the trade war has not directly impacted China's economy in any serious manner. "But the psychological effects cannot be ignored," he added.

In particular, he wonders about the repercussions on investment. "Since we cannot know what kind of change will occur to the global supply chain," he said, "we are facing great uncertainty."

This uncertainty caused global direct investment to fall nearly 20% in 2018 from the previous year, he pointed out.

Zhu also referred to possible effects of the Sino-U.S. trade row on the entirety of Asia. "It is true that China is racking up massive earnings, estimated to be $300 billion to $500 billion annually, from its exports to the U.S., but much of these exports are made with components from countries like Japan, South Korea and Indonesia," he said. Consequently, "if additional U.S. tariffs hurt Chinese exports, there will be significant effects not only on China but also on Asia's supply chain as a whole."

The crucial question concerning Washington and Beijing's trade conflict is "whether the U.S. will further raise the 10% tariffs it has imposed on $200 billion worth of Chinese products to up to 25%." If Washington does, "the volume of Chinese exports will decline sharply," Zhu said.

"In addition, the U.S. will also take a massive hit," he added. "Our estimate shows more than 50% of the $200 billion worth of Chinese exports [that have been subjected to the punitive U.S. tariffs] to the U.S. cannot be replaced by products from other countries."

The Chinese government has announced a fresh package to stoke growth, including tax cuts and more infrastructure investment. Zhu says these measures are "large enough to prop up economic growth."

The early effects of the package are already beginning to make themselves felt, Zhu said, speculating that the benefits will become "clearer" in the second or third quarter of this year.

Many other economists are sounding the alarm about the enormous amount of debt Chinese companies and local governments have piled up. While acknowledging the seriousness of the problem, Zhu stressed that the debt ratios of companies and local governments have stopped rising. "A series of steps taken to deal with the problem have prevented the situation from deteriorating further," he said.

"Of course, efforts to cut back debts should continue," he added. "As Japan has also learned, it is a formidable task to maintain economic growth while reducing indebtedness. We intend to achieve 'good debt reductions' while learning from Japan's experiences."