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Tuesday 23 July 2019

China’s economic growth sinks to three-decade low

Full-year growth for 2018 was the lowest since 1990.

Economic growth in 2018 was the lowest since 1990’s 3.9% in the wake of Tiananmen Square (Chinatopix via AP)
Economic growth in 2018 was the lowest since 1990’s 3.9% in the wake of Tiananmen Square (Chinatopix via AP)

By Joe McDonald, Associated Press

China’s economic growth fell to a three-decade low in 2018, adding to pressure on Beijing to settle a tariff war with Washington.

The world’s second-largest economy expanded by 6.6% over a year earlier, down from 2017’s 6.9%, official data showed on Monday.

Growth in the three months ending in December dipped to 6.4% — the lowest quarterly level since the 2008 global crisis — from the previous quarter’s 6.5%.

Communist leaders are trying to steer China to slower, more self-sustaining growth based on consumer spending instead of trade and investment.

Key risks are the ongoing trade tension with the US and that credit growth does not recover. Analyst Louis Kuijs

But the deceleration has been sharper than expected, prompting Beijing to step up government spending and order banks to lend more to shore up growth and avoid politically dangerous job losses.

“Growth will remain under pressure,” said Louis Kuijs of Oxford Economics in a report.

“Key risks are the ongoing trade tension with the US and that credit growth does not recover.”

Exports held up through most of 2018 despite Donald Trump’s tariff hikes on Chinese imports in a fight over Beijing’s technology ambitions. But they contracted in December as the penalties began to depress US demand.

Economic growth in 2018 was the lowest since 1990’s 3.9% in the aftermath of the violent crackdown on pro-democracy protests centred on Beijing’s Tiananmen Square.

Growth in investment, retail spending and factory activity all declined, the National Bureau of Statistics reported.

The impact of US tariffs was limited, but China faces pressure from growing global support for import controls, volatile financial markets and declining investment spending, said the bureau commissioner, Ning Jizhe.

“Downward pressure on the economy is increasing,” said Ning at a news conference.

Still, he added later, “the Chinese economy’s resilience and ability to resist shocks and the long-term trend of stability will not change”.

The slowdown is adding to pressure on Chinese president Xi Jinping’s government to settle its costly dispute with Washington.

The two sides have imposed tariff hikes of up to 25% on tens of billions of dollars of each other’s goods in the fight over US complaints Beijing steals or pressures companies to hand over technology.

Washington is pressing China to roll back plans for state-led industry development that its trading partners say violate its market-opening obligations.

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Donald Trump said trade talks with China were “going very well” and “a deal could very well happen” (Niall Carson/PA)

That dispute has rattled Chinese consumers that Beijing is counting on to drive growth. Some are cutting spending, which might worsen the downturn.

In a possible sign of progress, Beijing announced on Friday its top trade envoy, Vice Premier Liu He, will visit Washington for talks January 30-31.

Business groups and economists said a decision by Liu and his American counterpart, Robert Lighthizer, to get directly involved would suggest earlier talks by lower-level officials made progress.

Mr Trump said on Saturday that trade relations with China were “going very well” and “a deal could very well happen”.

Forecasters expect Chinese growth to bottom out this year as Beijing’s stimulus efforts gain traction.

However, they have pushed back the time frame for that due to weakening exports.

Government-led spending on public works construction “is shaping up to be the engine for 2019,” Iris Pang of ING said in a report. “However, non-infrastructure business activities will be dismal this year. And debt will grow.”

A meeting of leaders of the ruling Communist Party in December promised tax cuts, better access to bank lending for entrepreneurs and other steps to help the private sector that generates China’s new jobs and wealth.

Chinese leaders warned earlier any recovery would be “L-shaped”. That means companies and investors should not expect growth to rebound to the previous decade’s double-digit levels.

Forecasters expect growth to decline further this year to 6.3% or lower.

“A key downside risk to the Chinese growth outlook will be if the US-China trade war escalates, should the temporary truce expire without any trade deal being struck,” Rajiv Biswas of IHS Markit said in an email.

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