China growth slows to 27-year low as trade war bites

Resilient domestic consumption gives government some leeway as it tries to negotiate an end to trade dispute with US

China’s economy grew at its slowest pace in almost three decades in the second quarter as the trade war with the US took its toll on exports.

However, resilient domestic consumption meant that Beijing was able to avert a deeper slowdown, giving Chinese president Xi Jinping some leeway as he tries to negotiate an end to the dispute with the US.

Gross domestic product (GDP) grew at 6.2 per cent year-on-year, the National Bureau of Statistics (NBS) said on Monday. The figure, which was in line with most analysts’ expectations, was the slowest since the NBS began calculating its current series of GDP data in 1992 at the beginning of China’s long bull run.

China reported 6.4 per cent growth in the first quarter and 6.6 per cent for full-year 2018.

Tax cuts enacted earlier in the year helped boost the domestic economy, offsetting the problems with trade, Mao Shengyong, NBS spokesman, told reporters on Monday. “China’s economic growth is more and more reliant on domestic demand, especially on consumption,” Mr Mao said.

US president Donald Trump hailed the latest evidence of a slowdown, saying on Twitter that "United States tariffs are having a major effect on companies wanting to leave China for non-tariffed countries".

“Thousands of companies are leaving. This is why China wants to make a deal with the US and wishes it had not broken the original deal in the first place,” said Mr Trump. “In the meantime we are receiving billions of dollars in tariffs from China and possibly much more to come.”

The CSI 300 index of Shanghai and Shenzhen-listed stocks pared earlier losses to trade 0.9 per cent higher after the release of the data, while Hong Kong’s Hang Seng benchmark gained 0.2 per cent.

China’s softening economy comes after a period of tumultuous relations with Washington. The two countries have threatened and imposed new rounds of levies on each other’s goods, but agreed to a truce after a meeting between Mr Trump and Mr Xi last month at the G20 summit in Osaka.

Monetary policy

With fears growing that the trade war will dent China’s formidable export industry, Beijing has maintained a loose monetary policy and introduced industrial policies meant to stimulate investment. Nonetheless, some economists in China had expected an even lower number of about 6 per cent growth in the second quarter.

Most of the weakness in second-quarter GDP came from exports, which contracted in June, and from declines in housing construction and other indicators of investor sentiment.

“We see more weakness on the horizon,” said Julian Evans-Pritchard, China economist at Capital Economics.

China’s headline GDP numbers are heavily “smoothed out” for political purposes and to meet Beijing’s goal of doubling the size of its economy by 2020 compared with 2010, analysts say. Even so the figure is watched globally as an indication of the strength of the Chinese economy, the world’s second largest. – Copyright The Financial Times Limited 2019