Trump and Chinese President Xi Jinping agreed to resume negotiations on the fight that has battered exporters on both sides. (image courtesy:Reuters)
HIGHLIGHTS
- The trade war is having a huge impact on the Chinese economy
- The world's second-largest economy grew 6.2% over a year ago
- Forecasters had expected China's economy to rebound in late 2018
China’s economic growth slowed to its lowest level in a decade in the quarter ending in June, adding to pressure on Chinese leaders as they fight a tariff war with Washington.
The world’s second-largest economy grew 6.2% over a year ago, down from the previous quarter’s 6.4%, government data showed Monday. That was the weakest growth since the first quarter of 2009 in the aftermath of the global financial crisis.
Forecasters had expected China’s economy to rebound in late 2018 but pushed back that target after President Donald Trump hiked US tariffs on Chinese imports to pressure Beijing over its efforts to develop advanced technologies. Now, economists say the slowdown might extend into next year.
Trump and Chinese President Xi Jinping agreed last month to resume negotiations on the fight that has battered exporters on both sides. But economists warn their truce is fragile because they still face the same array of disputes that caused talks to break down in May.
The trade war is having a huge impact on the Chinese economy, said Edward Moya of OANDA in a report. As trade negotiations struggle for meaningful progress, we are probably not near the bottom for China’s economy.
Chinese leaders have stepped up spending and bank lending to keep growth within this year’s official target range of 6% to 6.5% and avert politically dangerous job losses. But they face an avalanche of unexpectedly bad news including plunging auto sales.
In the second half of the year, the external environment may still be more complicated, said a government spokesman, Mao Shengyong, at a news conference.
Weaker Chinese activity has global repercussions. This country is the biggest export customer for its Asian neighbors and a major market for global suppliers of food, mobile phones, industrial technology and consumer goods.
The International Monetary Fund and private sector economists have cut this year’s Chinese growth forecast to as low as 6.2%, a further marked decline after last year’s three-decade low of 6.6%.
Growth in retail sales slowed to 8.4% in the first half of 2019, down 0.1 percentage points from the first quarter, the government reported. Growth in factory output decelerated to 6% in the first half, down 0.1 percentage points from the first quarter.
Auto sales, reported earlier, fell 7.8% in June, extending a yearlong contraction in the industry’s biggest market. Chinese exports to the United States fell 7.8% in June from a year ago.
The fight between the two biggest global traders has disrupted sales of goods from soybeans to medical equipment and rattled financial markets.
The latest Chinese economic weakness appears to be driven by construction and industry, according to Julian Evans-Pritchard of Capital Economics. He said that was likely to worsen because a boom in real estate development is fading.
Combined with increasing headwinds from US tariffs and weaker global growth, we expect this to culminate in a further slowdown in economic growth over the coming year, Evans-Pritchard said in a report.
Beijing is pumping money into the economy through higher spending on building highways and other public works. That has shored up growth but set back efforts to reduce reliance on investment, which has pushed debt to levels that prompted credit rating agencies to cut China’s credit rating for government borrowing.
Spending on factories, real estate and other fixed assets rose 5.8% in the first half of the year, up 0.2 percentage points from the first five months.
Credit growth to support that has accelerated to dangerously high levels, according to Iris Pang of ING. She said in a report Friday that suggests the economy would be deteriorating without stimulus.
This worries us, she said.
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