China’s GDP growth seen slowing to 6.2% in second quarter

The tariffs on shipments to the US are having an impact on China’s economy, an economist said. (AFP)
Updated 12 July 2019
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China’s GDP growth seen slowing to 6.2% in second quarter

  • Beijing stepped up support for the economy but the moves have not been enough to offset a domestic slowdown and softening overseas demand
  • China’s 1.3 billion consumers remain a bright spot

BEIJING: China’s economy grew at its slowest rate in nearly three decades in the second quarter, according to an AFP survey of analysts, hit by the US-China trade war and weakening global demand.
The world’s second largest economy expanded 6.2 percent in April-June, the poll of 10 economists predicted ahead of the official release of gross domestic product figures Monday.
The reading would mark the worst quarterly growth in almost three decades but stay within the government’s target range of 6.0-6.5 percent for the whole year. The economy grew 6.6 percent in 2018.
Beijing has stepped up support for the economy this year but the moves have not been enough to offset a domestic slowdown and softening overseas demand for its toys, gadgets and electronics.
Policymakers are likely to take further action, analysts say, with Premier Li Keqiang presiding over a state council meeting Wednesday that pledged to lower tariffs and step up tax rebates for exporters.
“The existing tariffs on exports to the US are having an impact on China’s economy,” said Steven Cochrane, chief APAC economist with Moody’s Analytics.
“Industrial production and exports are also weak, with shipments to the US declining significantly,” he said.
Beijing pushed forward a raft of stimulus measures earlier this year to cushion the impact from its cooling economy, increasing spending on roads, railways and other big-ticket infrastructure projects, and tax cuts worth 2 trillion yuan ($297 billion) kicking in from April.
The policies buoyed the economy in March and brought in 6.4 percent growth for the first quarter, but it proved no more than a short-term panacea.
Industrial output surged 8.5 percent in March before tumbling in April and dropping to five percent growth in May, the slowest increase since 2002.
The build in infrastructure investment has also retreated from the first quarter, coming in at 4.0 percent in January-May, sharply down from years of near 20 percent expansion.
China’s 1.3 billion consumers have remained a bright spot.
“Consumption is holding up relatively well, possibly reflecting the effects of income and value-added tax cuts,” said Tommy Wu of Oxford Economics.
Sales of big-ticket items such as cars have not held up, though, with sales down 12.4 percent in the first half of the year, according to the China Association of Automobile Manufacturers.
Analysts widely expect Beijing will step up with further easing in coming months, with Cochrane tipping new measures heading into 2020.
“This will include lower real interest rates for small firms, further reserve requirement ratio reductions, and ongoing infrastructure spending,” he said.
The overall downward trend gives President Xi Jinping little room to fight back forcefully against the US, which is using tariffs as leverage to try to force China into opening up its economy.
Washington and Beijing have hit each other with punitive tariffs covering more than $360 billion in two-way trade and damaging manufacturers on both sides of the Pacific.
US President Donald Trump and Xi agreed to revive negotiations when they met on the sidelines of the G20 summit in Japan on June 29.
Top US and Chinese negotiators held phone talks on Tuesday but it remains unclear if the wide rupture that has formed since talks broke down in May can be patched over.
On Thursday Trump raised eyebrows with a tweet accusing China of not fulfilling a pledge to buy more agricultural goods, adding: “Hopefully they will start soon!”
Björn Giesbergen of RaboResearch said “we are currently in a stable, unstable equilibrium” with the US-China trade war.
“Ultimately we believe it will be impossible to reach a long-lasting deal. As such, the question is not if tensions will flare up again, but rather when,” he said.


BMW picks insider Zipse as CEO to catch up with rivals

Oliver Zipse
Updated 19 July 2019
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BMW picks insider Zipse as CEO to catch up with rivals

  • German giant has lost ground to Mercedes-Benz and Tesla as tech steps up

FRANKFURT: BMW has named Oliver Zipse as its new CEO, continuing the German carmaker’s tradition of promoting production chiefs to the top job even as the auto industry expands into new areas such as technology and services.
Hailing Zipse’s “decisive” leadership style, BMW hopes the 55-year-old can help it win back its edge in electric cars and the premium market  from rival Mercedes-Benz.
But some analysts questioned whether Zipse was the right choice with new fields such as software and services like car-sharing becoming increasingly important.
“What is intriguing is the cultural bias to appoint the head of production. It works sometimes but ... being good at building cars is not a defining edge the way it was 20 years ago,” said Jefferies analyst Philippe Houchois.
Current CEO Harald Krueger, and former chiefs Norbert Reithofer, Bernd Pischetsrieder and Joachim Milberg were all former production heads.
Zipse joined BMW as a trainee in 1991 and served as head of brand and product strategies and boss of BMW’s Oxford plant in England before joining the board.
He will become chief executive on Aug. 16, taking over from Krueger who said he would not be available for a second term.
“With Oliver Zipse, a decisive strategic and analytical leader will assume the Chair of the Board of Management of BMW. He will provide fresh momentum in shaping  the future,” said Reithofer.
Zipse helped expand BMW’s efficient production network in Hungary, China and the US, in a move that delivered industry-leading profit margins.
Under Krueger, BMW was overtaken in 2016 by Mercedes-Benz as the best-selling luxury car brand.
It also had an early lead over US  rival Tesla in electric cars, but scaled back ambitions after its i3 model failed to sell large numbers.
Reithofer initially championed Krueger’s low-key consensus-seeking leadership, but pressured him to roll out electric vehicles more aggressively, forcing Krueger to skip the Paris Motor Show in 2016 to reevaluate BMW’s electric strategy.
Krueger’s reluctance to push low-margin electric vehicles led to an exodus of talented electric vehicle experts, including Christian Senger, now Volkswagen’s (VW) board member responsible for software, and Audi’s Markus Duesmann, who is seen as a future CEO of the company.
Both were poached by VW CEO Herbert Diess, a former BMW board member responsible for research who was himself passed over for BMW’s top job in 2015.
VW has since pushed a radical 80 billion euro ($90 billion) electric car mass production strategy, and a sweeping alliance with Ford.

Other skills
“A CEO needs to have an idea for how mobility will evolve in the future. This goes far beyond optimising an existing business,” said Carsten Breitfeld, chief executive of China-based ICONIQ motors, and former BMW engineer. “He needs to build teams, attract talent, and promote a culture oriented along consumer electronics and internet dynamics.”
German manufacturers have dominated the high-performance market for decades, but analysts warn shifts towards sophisticated technology and software is opening the door to new challengers.
“Tesla has a lead of three to four years in areas like software and electronics. There is a risk that the Germans can’t catch up,” UBS analyst Patrick Hummel said.
Germany’s Auto Motor und Sport car magazine, normally quick to champion German manufacturers, this week ran a cover questioning BMW’s future.
“Production expertise is important, but if you want to avoid ending up being a hardware provider for Google or Apple, you need to have the ability to move up the food chain into data and software,” a former BMW board member said.