China’s growth slowed to its weakest pace in almost three decades in the second quarter, with the US-China trade war and weakening global demand weighing on the world’s number-two economy, official data showed Monday.
The slowing economy makes it more difficult for President Xi Jinping to fight back forcefully against Washington – which is using tariffs as leverage to try to force Beijing into opening up its economy.
Nevertheless, Mao Shengyong, spokesperson of the China’s National Bureau of Statistics, used many different positive phrases to characterize the figure. When answering media questions in a Beijing press briefing, Mao said the growth rate was “actually not bad,” “high-quality and sustainable,” “relatively stable,” “not low,” “having relatively high gold content,” “not easy to achieve” and “with strong momentum.”
Rather than dismissing Mao’s attempt at positive spin, analysts noted that there were indeed bright spots in the figures for June alone.
Mao said Chinese economic growth was within a stable and reasonable range and remained one of the highest in the world. He added that while global economic growth had been slowing down from last year, it was a great achievement for China to maintain stable growth by promoting reform and innovation, cutting taxes and fees and encouraging market forces without using a great deal of monetary stimulus in the first half.
“The external environment will remain complicated in the second half while domestically there will be downward pressure,” he acknowledged. “But the trend of stable economic growth will not change as there is a lot of room to launch more supportive measures,” Mao didn’t elaborate on what the coming measures will be.
Supportive measures
Mao said supportive measures launched earlier this year had shown some effects from April and would show more effects in the second half of this year.
On March 5, China’s Finance Ministry announced that the deficit would increase to 2.76 trillion yuan (US$401 billion) with a deficit ratio at 2.8% for this year, compared with 2.6% for 2018. The ministry also said it would cut taxes and fees by 2 trillion yuan this year. During the first five months of this year, the amount of tax and fee cuts totaled 893 billion yuan, 816.8 billion of which represented new items.
The central government also planned to allow local governments to raise 2.15 trillion yuan in debt for their infrastructure projects.
During the first half, consumption and exports contributed 60.1% and 20.7%, respectively, of Chinese economic growth while capital investments contributed only 19.2% of the growth, according to the National Bureau of Statistics.
The contribution of capital investments particularly in the manufacturing and infrastructure areas remained relatively low, Mao said.
“In the next phase, China still needs to push forward with deep reform, improve its business environment and further encourage market forces,” he said. I”n the second half, there will a better economic performance.”
The 6.2 percent figure released by the National Bureau of Statistics was in line with a survey of analysts by AFP and down from a 6.4 percent expansion in the first quarter.
With this year marking the 70th anniversary of the People’s Republic of China founding, politics necessitates healthy growth, said Raymond Yeung of ANZ bank.
“The Chinese government will not allow the quarterly growth to fall below 6.0” percent, he said in a note.
Bright spots
The month of June did hold bright spots for the economy.
Industrial output rose 6.3 percent, from May’s 5.0 percent, which had been the slowest increase since 2002.
Fixed-asset investment also picked up, rising 5.8 percent year-on-year in January-June, from 5.6 percent in January-May.
China’s 1.3 billion consumers continued to open their wallets, with retail sales growing 9.8 percent on-year in June, up from 8.6 percent in May.
Still, “a stronger end to the quarter didn’t prevent growth from slowing in (the second quarter) and we see more weakness on the horizon,” said Julian Evans-Pritchard of Capital Economics in a note.
Sales of big-ticket items such as cars have not held up, with sales down 12.4 percent in the first half of the year, according to the China Association of Automobile Manufacturers.
And growth in infrastructure investment has retreated from years of near 20 percent expansion – coming in at a 4.1 percent rise in January-June.
Imports and exports also both shrank in June, while the urban unemployment rate ticked up to 5.1 percent for the month.
Meanwhile, extreme weather and highly contagious African swine fever have sent food prices skyrocketing, especially for meat, with the size of the world’s largest pig herd down 15 percent in the first half of the year.
‘Economic realities’
The trade war with the US has hit demand for China’s goods, compounding slowing demand from the rest of the world.
“It’s hard to escape the economic realities that the US-China trade war is having on global economies,” said Stephen Innes, managing partner at Vanguard Markets.
Altogether the two economic giants have slapped each other with punitive tariffs covering more than $360 billion in two-way trade, damaging manufacturers on both sides of the Pacific.
It helped push China’s manufacturing activity into contraction last month and its exports to the US dropped more than 8 percent over the first half of the year.
High-level trade talks to resolve the issues resumed this month, but the gulf between the two sides remains wide.
China on Friday said it would impose sanctions on US companies involved in a potential arms sale worth $2.2 billion to self-ruled Taiwan.
–With additional reporting by AFP–