The fact that China's economic growth in the second quarter of 2019 fell to its lowest level in 27 years sounds more alarming than it actually is. First of all, at 6.2 per cent, China's growth is respectable by any standard. It is also within the government's target range of 6 per cent to 6.5 per cent for the year. Moreover, there are encouraging signs that China's economy is rebalancing away from investment-led growth to consumption-led growth, which would make it more resilient. However, China's economy faces both external and internal headwinds. The threats to its growth story come from two main sources.
One is the ongoing trade dispute with the United States and the other is China's domestic debt. The US-China trade dispute has no doubt started to impact China's economy. Latest data shows that both exports and imports declined in the month of June, and this trend could continue and even accelerate as companies - especially those that export to the US - relocate their supply chains away from China to avoid having to pay 25 per cent tariffs, which the US has levied on some US$250 billion (S$340 billion) worth of Chinese goods. Supply chains have already begun to move, with manufacturers shifting their sourcing to countries like Vietnam, Malaysia, India and Mexico. This could lead to both job losses and lower growth in China.