Surrounded by the BRICS wall, President Xi Jinping took a wrecking ball to protectionism.
Speaking at a summit in Brazil’s capital this week, he reiterated that China was open for business.
“Protectionist and bullying counter-currents bring shocks to international trade, adding to downward pressure on the world economy,” he said in reference to the trade war with the United States.
His comments came as leaders from the BRICS nations of Brazil, Russia, India, China and South Africa gathered in Brasilia to discuss closer trade cooperation as tensions with the US rise.
Along with domestic issues, the 18-month Sino-American dispute has acted as a brake on the world’s second-largest economy.
Further signs of stress were highlighted on Thursday after a raft of data released by the National Bureau of Statistics showed a sharp slowdown in consumer spending and factory production.
To underline the depth of the problem, investment growth hit a record low.
“Not only were last month’s data weak, but further weakness lurks ahead,” Martin Lynge Rasmussen, a China economist at Capital Economics, said in a media note.
Breaking down the numbers, retail sales jumped 7.2% in October compared to the same period last year. At first glance, that looks reasonably healthy but it still matched April’s 16-year low.
Since March, consumers have been hit with higher food prices as the cost of pork and other meats soared after an outbreak of African swine fever decimated the domestic pig sector.
“Downward pressure has continued to increase on the economy,” the National Bureau of Statistics said in a statement.
Industrial production was also sluggish, expanding by just 4.7% last month compared to 5.8% in September. Moreover, that was below analysts’ expectations of 5.4% and just 0.3% up from August’s 17-year low of 4.4%.
Another key driver of economic growth, fixed-asset investment expanded by 5.2% in the first 10 months, the lowest recorded, according to the Reuters news agency, since records began in 1996.
Earlier this week, Premier Li Keqiang warned of the challenges ahead at a meeting with economists and policymakers.
“The current external environment [has become] more complex and severe, with increasing downward pressure on the domestic economy, rapidly rising prices of pork and other products, and increasing difficulties in the business operations of companies,” he said.
Still, a report by Barclays was slightly more optimistic despite “weak domestic demand.”
The British multinational investment bank and financial services company said:
“While this could raise concerns that the economy is losing momentum, we are more constructive on the outlook as we think the better-than-expected export performance suggests some early signs of stabilization in global growth, which could partially offset domestic weakness and help to arrest the downward growth momentum.
“We raise our 2019 GDP [gross domestic product] growth forecast to 6.1% and for 2020 to 5.8%.”
Even so, for Xi’s government, this comes on the back of a tariffs row with Washington as the trade war drags on and the economy stumbles. In the third quarter, GDP growth dipped to 6%, the slowest rate in nearly three decades.
So far, the Trump administration has slapped increased duties on more than US$500 billion of Chinese imports. In response, Beijing has added tariffs on US goods and products worth around $110 billion.
“Admittedly, optimism surrounding a phase-one US-China trade deal could provide a boost to corporate investment in the near term,” Rasmussen, of Capital Economics, said.
“But even if a minor deal is agreed upon in the coming months, this would merely allow the focus to shift to the more intractable issues that we think will eventually lead the trade talks to break down. The case for further monetary easing remains intact.”
Discussions have stalled about the details of a phase one agreement since Trump shook hands with China’s Vice-Premier Liu He in Washington last month.
Reports have emerged that the US is pushing for stronger intellectual property protection and written guarantees to stop the practice of forced technology transfer.
At the same time, Beijing has called for tariffs to be rolled back in stages if China agrees to increase imports of American farm produce, which Trump insisted could be as high as $50 billion.
In short, a stalemate now exists even though a mini deal in principle was agreed nearly a month ago.
How this plays out is open to debate. But the conflict has already had a negative effect on the global economy, the International Monetary Fund pointed out in October.
“Motivation to find a pathway to a deal comes from the fact that the world economy is slowing down, we are in a synchronized slowdown,” Kristalina Georgieva, the new managing director of the IMF, told the CNBC network.
For Xi, replacing the crumbling bricks in China’s economy has become a priority even as he basks in the glow of the BRICS summit.