China’s economy growth cools further amid US tariff war

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A worker passes by goods piled up at a warehouse in east China’s Jiangsu province. China’s economic growth slowed to its lowest level in a decade last quarter. (AP)
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Trucks transport containers at a port in Qingdao, Shandong province, China July 11, 2019. (REUTERS)
Updated 16 July 2019

China’s economy growth cools further amid US tariff war

  • Data showed growth in retail sales slowed to 8.4% in the first half of 2019, down 0.1 percentage points from the first quarter
  • One of the biggest factors in weakness is lackluster activity in construction sector

BEIJING: China’s economic growth sank to its lowest level in at least 26 years 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 percent over a year ago, down from the previous quarter’s 6.4 percent, government data showed Monday.
Forecasters expected China’s economy to rebound in late 2018 but pushed back that target after President Donald Trump raised tariffs on Chinese imports to pressure Beijing over its technology development tactics. Now, economists say the slowdown might extend into next year.
Weaker Chinese activity carries global repercussions. China is the world’s second-biggest export market behind the US. Countries that feed raw materials to Chinese factories — from Chilean copper to Indonesian coal — are especially vulnerable to decelerating growth in China.
The proportion of South African output going to China, for instance, has shot up from 2 percent in the mid-2000s to 15 percent now, according to a study by the McKinsey Global Institute.
Additionally, China consumes 45 percent of the Democratic Republic of Congo’s exports, 33 percent of Australia’s and 24 percent of South Korea’s, according to United Nations data cited in the McKinsey report. Emerging market countries are also increasingly dependent on Chinese investment. China accounts for 13 percent of foreign direct investment — including corporate mergers and new factories — in Egypt, up from 1 percent in the mid-2000s, and 8 percent of Pakistan’s, up from 2 percent.
Researchers at J.P.Morgan have estimated that if China’s annual growth slows to 4.5 percent by the end of the next decade, as they expect, global metals prices will plunge 40 percent to 60 percent.
IHS Markit foresees world economic growth slowing this year to 2.8 percent from 3.2 percent in 2018.
A decelerating “China is certainly part of that,” said Sara Johnson, IHS’ executive director for global economics.
But the world faces other problems, too. For one thing, Trump’s tariffs on imports from a host of countries — and the retaliation they have drawn from America’s trading partners — are crimping world trade and investment.
Manufacturers worldwide are also sitting on unsold stockpiles of goods, and growth will likely slow as they pare their inventories, Johnson said.
Trump and President Xi Jinping agreed last month to resume negotiations in a fight that has battered both American and Chinese exporters. 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,” Edward Moya of OANDA said 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 percent to 6.5 percent 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.
Quarterly growth was the lowest since China began reporting such data in 1993, according to an employee of the press office of the National Bureau of Statistics, Dong Hui.
In 2009, the NBS reported growth of 6.1% for the first three months of that year. However, Dong said that later was revised up to 6.4 percent.
Jittery consumers are putting off major purchases, depressing demand for autos, home appliances and other goods.
“I don’t think the country’s economy is as good as it looks,” said Peng Tao, a 26-year-old delivery courier who said he makes 5,000-6,000 yuan ($750-$870) a month.
“China has been surely hurt more in the trade war,” said Peng. “I am not very happy about job prospects because there just aren’t many opportunities out there.”
Urban families the ruling Communist Party is counting on to help propel consumer-driven growth to offset weak trade are being squeezed by rising living costs and slower wage growth.
Qiu Wanli, who works for an insurance company in the northwestern region of Xinjiang, said her family has little left over each month after paying a mortgage and expenses for her 3- and 6-year-old daughters and two elderly relatives.
“The burden to support the family is fairly heavy,” said Qiu, 30. “We rarely travel and have no plans to because of financial conditions.”
The fight between the two biggest global traders has disrupted sales of goods from soybeans to medical equipment and rattled financial markets.
The biggest factor in the latest Chinese economic weakness is lackluster activity in 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 percent 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.


White House says Trump regrets not raising tariffs higher

US President Donald Trump arrives at the G7 summit in Biarritz, France, on Sunday. Trump had been trying to use the conference to rally global leaders to do more to stimulate their economies, as fears rise of a potential slowdown in the US ahead of his reelection. (AP)
Updated 26 August 2019

White House says Trump regrets not raising tariffs higher

  • President’s comments appear at first to mark a rare moment of self-reflection by the US leader

TOKYO: President Donald Trump said Sunday that he had second thoughts about escalating the trade war with China, but the White House later reversed that message saying the president was misinterpreted and that his only regret in hiking tariffs is that he didn’t raise them higher. Trump faced a tense reception from world leaders meeting amid mounting anxiety of a global economic slowdown at the Group of Seven summit in France. During a breakfast meeting with British Prime Minister Boris Johnson, Trump suggested he had qualms about the spiraling conflict. “Yeah. For sure,” Trump told reporters when asked if he has second thoughts about escalating the dispute, adding he has “second thoughts about everything.”
But hours later, White House press secretary Stephanie Grisham issued a statement saying Trump’s comments about US tariffs on China were “greatly misinterpreted.”
She said Trump only responded “in the affirmative — because he regrets not raising the tariffs higher.” The comments appeared at first to mark a rare moment of self-reflection by the famously hard-nosed leader. But the later reversal fit a pattern for Trump in recoiling from statements he believes suggest weakness.

HIGHLIGHTS

• President Donald Trump faced a tense reception from world leaders meeting amid mounting anxiety of a global economic slowdown at the Group of Seven summit in France.

• White House said comments about US tariffs on China were ‘greatly misinterpreted.’

Trump had been trying to use the conference to rally global leaders to do more to stimulate their economies, as fears rise of a potential slowdown in the US ahead of his reelection. Trump’s counterparts, including Johnson, are trying to convince him to back off his trade wars with China and other countries, which they see as contributing to the economic weakening.

US-Japan agreement
Trump and Japan’s Prime Minister Shinzo Abe announced on Sunday a deal in principle on a major bilateral trade deal.
“It’s a very big transaction,” Trump said after talks with Abe on the sidelines of the G7 summit.
“Billions and billions of dollars,” he said. “It involves agriculture, it involves e-commerce. It involves many things. We’ve agreed in principle.”

Amazon fires
Also on Sunday, French President Emmanuel Macron said that world leaders at the G7 summit have agreed to help the countries affected by the huge wildfires ravaging the Amazon rainforest as soon as possible.
“We are all agreed on helping those countries which have been hit by the fires as fast as possible,” he told journalists.