China’s GDP growth grinds to near 30-year low as tariffs hit production

China’s third-quarter GDP growth was the slowest since the first quarter of 1992. (AP)
Updated 18 October 2019

China’s GDP growth grinds to near 30-year low as tariffs hit production

  • China’s trading partners and investors are closely watching the health of the world’s second-largest economy
  • The third-quarter GDP growth was the slowest since the first quarter of 1992

BEIJING: China’s third-quarter economic growth slowed more than expected and to its weakest pace in almost three decades as the bruising US trade war hit factory production, boosting the case for Beijing to roll out fresh support.
Gross domestic product (GDP) rose just 6.0 percent year-on-year, marking a further loss of momentum for the economy from the second quarter’s 6.2 percent growth.
China’s trading partners and investors are closely watching the health of the world’s second-largest economy as the trade war with the United States fuels fears about a global recession.
Downbeat Chinese data in recent months has highlighted weaker demand at home and abroad. Still, most analysts say the scope for aggressive stimulus is limited in an economy already saddled with piles of debt following previous easing cycles, which have sent housing prices sharply higher.
Nie Wen, a Shanghai-based economist at Hwabao Trust, pinned the worse-than-expected GDP growth mainly to weakness in export-related industries, especially the manufacturing sector.
“Given exports are unlikely to stage a comeback and a possible slowdown in the property sector, the downward pressure on China’s economy is likely to continue, with fourth-quarter economic growth expected to slip to 5.9 percent,” Nie said.
“Authorities will loosen policies, but in a more restrained way.”
The third-quarter GDP growth was the slowest since the first quarter of 1992, the earliest quarterly data on record, and missed forecasts for 6.1 percent growth in a Reuters poll of analysts. It was also at the bottom end of the government’s full-year target range of 6.0 percent-6.5 percent.
In a briefing after the GDP data release, Mao Shengyong, a spokesman for China’s statistics bureau, announced Beijing’s plans to bring forward some 2020 special local government bond issuance to this year, in a move to spur regional infrastructure investment.
Even recent signs of breakthrough in the protracted trade war between Beijing and Washington are unlikely to change the economic outlook any time soon.
US President Donald Trump said last week the two sides had reached agreement on the first phase of a deal and suspended a tariff hike, but officials warn much work still needed to be done.
A slide in China’s exports accelerated in September while imports contracted for a fifth straight month.
The drags on demand, both domestic and global, have hit several key parts of the economy with weakness seen in freight shipments, factory power generation, employment and entertainment spending. In September, factory gate prices fell at their fastest pace in three years.
Mao from the statistics bureau said there was ample room to change monetary policy, as rising consumer inflation has been mainly driven by volatile food prices.
The International Monetary Fund has warned the US-China trade war will cut 2019 global growth to its slowest pace since the 2008-2009 financial crisis, but said output would rebound if their dueling tariffs were removed.
Beijing has relied on a combination of fiscal stimulus and monetary easing to weather the current slowdown, including trillions of yuan in tax cuts and local government bonds to fund infrastructure projects and efforts to spur bank lending.
But the economy has been slow to respond with business confidence shaky and local governments facing increasing strains as tax cuts hit revenues, weighing on investment.
In contrast to the disappointing headline GDP number, China’s industrial output grew a better-than-expected 5.8 percent in September, faster than the 17-year-low posted in August.
The uptick was in line with signs of increased domestic orders, though overall demand remains at historically weak levels. Analysts had expected industrial output to grow 5.0 percent in September.
September’s industrial production was also in line with recent business surveys that noted new domestic orders in food processing, textiles and electrical machinery, although growth in other products such as cement, crude steel and cars slowed further.
Hwabao Trust’s Nie does not expect stronger manufacturing to last given slowing global demand, which would suggest a pick up in broader economic growth remains unlikely.
Fixed asset investment grew 5.4 percent from January-September, matching expectations, but slowing from the 5.5 percent in the first eight months.
Private sector fixed-asset investment, accounting for 60 percent of the country’s total investment, grew 4.7 percent in January-September, down from 4.9 percent in January-August.
Retail sales rose 7.8 percent year-on-year last month, in line with expectations, and faster than 7.5 percent in August.

World Bank chief tells China it needs ‘vital’ reforms

Updated 22 min 38 sec ago

World Bank chief tells China it needs ‘vital’ reforms

BEIJING: World Bank chief David Malpass urged China on Thursday to further open up its economy and reduce state subsidies, echoing key demands made by the United States in protracted trade war negotiations.

Malpass made the remarks after a roundtable meeting with Chinese Premier Li Keqiang and the heads of other global institutions, including the International Monetary Fund and the World Trade Organization.

“I encouraged new reforms and liberalization,” he said.

Beijing is struggling to kickstart the economy, which expanded at its slowest pace for nearly three decades in the third quarter amid cooling global demand for its exports and a looming debt crisis at home.

Malpass said Beijing must resolve bilateral trade disputes and improve transparency in lending to avoid a sharp downturn on growth over the coming decades.

“China could improve the rule of law, allow the market to play a more decisive role in allocating resources including debt and investment, reduce subsidies for state-owned enterprises... and remove barriers to competition,” he said.

“It is hard to achieve but it is vital for reducing any inequality and building higher living standard,” Malpass said.

State-owned behemoths dominate lucrative sectors of China’s economy — including energy, aviation and telecommunications — where access to private players is restricted.

China’s trade partners have also long complained about the lack of an equal playing field and theft of intellectual property.

The country’s rubber-stamp parliament in March passed a foreign investment law that promises to address these issues, but local governments are still working on detailed rules needed to implement it.

Li said both domestic and foreign companies registered in China will be treated equally.

“They will have equal access to investment opportunities, equitable access to resources, legal protection in accordance with the law,” he said.

Beijing has also announced a timetable to open up its financial sector to foreign investors next year, as it attempts to woo outside capital to shore up an economy battered by the trade war with the United States.

China and the US have slapped tariffs on over $360 billion worth of goods in two-way trade.

Negotiators from both sides have been working toward a partial deal, but US President Donald Trump on Wednesday said Beijing has not made sufficient concessions, making him reluctant to conclude a bargain.

Economic data shows the uncertainty created by the trade spat between the world’s two biggest economies is undermining global growth.

IMF chief Kristalina Georgieva warned that implementing all the announced tariffs would cut $700 billion out of the world economy next year.

“What should be our priorities? First, to move from trade truce to trade peace,” she said.