China's growth slows to 27-year low as trade war bites

A worker at a plastic packaging factory in China's Jiangsu province. It was not all bad news as China's industrial production last month grew 6.3 per cent year on year. PHOTO: REUTERS
A worker at a plastic packaging factory in China's Jiangsu province. It was not all bad news as China's industrial production last month grew 6.3 per cent year on year. PHOTO: REUTERS

Economy grows 6.2% in Q2; analysts expect slowdown to continue, triggering more stimulus measures

China's economy grew 6.2 per cent in the second quarter of this year, its slowest rate in 27 years, as the country's trade war with the United States exacted its toll.

Analysts said they expect economic growth to continue to weaken for the rest of this year, which would likely prompt more aggressive stimulus measures from the government.

Data released yesterday by the National Bureau of Statistics (NBS) showed that gross domestic product (GDP) growth in the second quarter slowed further from the 6.4 per cent in the first quarter of the year, but largely within expectations.

The economy grew by 6.3 per cent in the first half of the year, according to the NBS. The figure is still within the 6 per cent to 6.5 per cent target that Beijing has set for full-year GDP growth.

Last year, China's economy grew by a reported 6.6 per cent.

Economists are closely watching the performance of the world's second largest economy as the trade war continues, dragging down other economies, including Singapore, whose second-quarter economic growth slumped to 0.1 per cent.

Speaking at a briefing yesterday, NBS spokesman Mao Shengyong said that despite the slowdown, China's economy performed within a "reasonable range".

"Global growth is slowing, the external environment is more complicated than in the past. We are focusing our energy on restructuring and upgrading industries," he said when asked about what impact the trade war was having on the economy.

The data released yesterday showed several bright spots for the Chinese economy.

Domestic consumption, as indicated by retail sales, rose 9.8 per cent last month from a year earlier. This was up from 8.6 per cent in May and 7.2 per cent in April - the lowest figure since 2003.

 
 
 

Industrial production last month also grew 6.3 per cent year on year, 1.3 percentage points faster than in May, when it had slumped to a 17-year low.

Peking University finance professor Michael Pettis said GDP growth has slowed because of the trade war and Beijing's efforts to control debt levels.

One thing to watch going forward is whether growth numbers pick up. This would be a sign that Beijing is unleashing stimulus measures to boost the economy, which could also worsen existing debt risks, he said.

"The numbers (today) are not surprising. What really matters is how Beijing will react to the numbers," said Professor Pettis.

Tsinghua University economist Yuan Gangming said he expects that economic growth in the third and final quarters will continue to fall, estimating full-year growth to come in at 6.2 per cent.

Domestic concerns will likely pose greater downward pressure on the economy, he said. "As China makes adjustments to restructure and upgrade industries, this process will also cause economic growth to slow down," he added.

Yesterday's data follows trade figures released last week, which showed exports and imports dipped last month following an escalation of the trade war in May with heightened US tariffs on Chinese goods.

Although both President Donald Trump and Chinese President Xi Jinping met at the G-20 Summit in Osaka and declared a truce in the trade war, tariffs remain on US$360 billion (S$488 billion) worth of goods imposed by both sides while trade talks are under way.

A version of this article appeared in the print edition of The Straits Times on July 16, 2019, with the headline 'China's growth slows to 27-year low as trade war bites'. Print Edition | Subscribe