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China second-quarter GDP growth set to slow to 6.2%, 27-year low, as trade war bites

EconomyJul 15, 2019 08:37AM ET
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© Reuters. Trucks transport containers at a port in Qingdao, Shandong

By Kevin Yao

BEIJING (Reuters) - China's economic growth slowed to 6.2% in the second quarter, its weakest pace in at least 27 years, as demand at home and abroad faltered in the face of mounting U.S. trade pressure.

While more upbeat June factory output and retail sales offered signs of improvement, some analysts cautioned the gains may not be sustainable, and expect Beijing will continue to roll out more support measures in coming months.

China's trading partners and financial markets are closely watching the health of the world's second-largest economy as the Sino-U.S. trade war gets longer and costlier, fuelling worries of a global recession.

Monday's growth data marked a loss of momentum for the economy from the first quarter's 6.4%, adding to expectations that Beijing needs to do more to boost consumption and investment and restore business confidence.

The April-June pace, in line with analysts' expectations, was the slowest since the first quarter of 1992, the earliest quarterly data on record.

"China's growth could slow to 6% to 6.1% in the second half," said Nie Wen, an economist at Hwabao Trust. That would test the lower end of Beijing's 2019 target range of 6-6.5%.

Cutting banks' reserve requirement ratios (RRR) "is still very likely as the authorities want to support the real economy in the long run," he said, predicting the economy would continue to slow before stabilizing around mid-2020.

China has already slashed RRR six times since early 2018 to free up more funds for lending, and analysts polled by Reuters forecast two more cuts by the end of this year. [ECILT/CN]

Beijing has leaned largely on fiscal stimulus to underpin growth this year, announcing massive tax cuts worth nearly 2 trillion yuan ($291 billion) and a quota of 2.15 trillion yuan for special bond issuance by local governments aimed at boosting infrastructure construction.

The economy has been slow to respond, however, and business sentiment remains cautious.

Trade pressures have intensified since Washington sharply raised tariffs on Chinese goods in May. While the two sides have since agreed to resume trade talks and hold off on further punitive action, they remain at odds over significant issues needed for an agreement.

U.S. President Donald Trump in a tweet linked China's slowing growth to the U.S. tariffs.

"The United States Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries," Trump wrote. "These Tariffs are paid for by China devaluing & pumping, not by the U.S. taxpayer!"

Despite the trade dispute, Chinese net exports accounted for a striking 20.7% of the first-half GDP growth, as exporters had rushed to sell ahead of higher U.S. tariffs and imports had weakened more sharply amid sagging domestic demand.

For June, both exports and imports fell, and an official survey showed factories were shedding jobs at the fastest pace since the global crisis a decade ago.

"Due to the global slowdown and impact from the trade war, our exports will continue to fall and it's possible they may post zero growth for the year," said Zhu Baoliang, chief economist at the State Information Centre, a top government think-tank.

The contribution from net exports will decline as domestic demand gradually recovers, Zhu told the official Financial News ahead of the Q2 data, adding that he expects economic growth to slow to 5.8% next year.

MORE SUPPORT ON THE WAY

A string of downbeat data in recent months and the sudden escalation in the trade row had sparked questions over whether more forceful easing may be needed to get the economy back on steadier footing, including some form of interest rate cuts.

China has "tremendous" room to adjust policies if the trade war worsens, the central bank governor was quoted as saying in June.

Premier Li Keqiang said this month that China will make timely use of cuts in banks' reserve ratios and other financing tools to support smaller firms, while repeating a vow not to use "flood-like" stimulus.

Analysts believe room for more aggressive monetary policy easing is being limited by fears of adding to high debt levels and structural risks.

Moreover, June industrial production, retail sales and fixed-asset investment data all beat analysts' forecasts, suggesting that Beijing's earlier growth-boosting efforts may be starting to have an effect.

Industrial output climbed 6.3% from a year earlier, data from the National Bureau of Statistics showed, picking up from May's 17-year low and handily beating an expected 5.2%.

Daily output for crude steel and aluminum both rose to record levels.

Retail sales jumped 9.8% - the fastest since March 2018 - and confounding expectations for a slight pullback to 8.3%. Gains were led by a 17.2% surge in car sales.

Mao Shengyong, a spokesman at the National Bureau of Statistics, told a briefing that he expected the benefits of policy measures will be more obvious in the second half.

Some analysts, however, questioned the apparent recovery in both output and sales.

Capital Economics said its in-house model suggested slower industrial growth last month, while the jump in car sales may have been partly due to a one-off factor.

Car dealers in China are offering big discounts to customers to reduce high inventories that have built up due to changing emission standards. Motor vehicle production actually fell 15.2%, the 11th monthly decline in a row, suggesting automakers don't expect a sustained bounce in demand any time soon.

INVESTMENT ALSO SLOWLY PICKING UP

Fixed-asset investment for the first half of the year rose 5.8% from a year earlier, compared with a 5.5% forecast and 5.6% in the first five months. Infrastructure expanded 4.1%, with railways continuing to grow in the double digits.

Real estate investment, a major growth driver, also quickened in June, rising 10.1% on-year, Reuters calculated. But new home sales shrank for a second month.

"The monthly data were better than expected... (But) we are skeptical of this apparent recovery given broader evidence of weakness in factory activity," said Julian Evans-Pritchard, senior China economist at Capital Economics.

"Looking ahead, we doubt that the data for June will mark the start of a turnaround."

China second-quarter GDP growth set to slow to 6.2%, 27-year low, as trade war bites
 

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Comments (8)
Zeppelin Zeppelin
Zeppelin Zeppelin Jul 15, 2019 1:18PM ET
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It's working. It's working. MR TRUMP THE TARIFF MAN is gradually destroying productivity and the world economy. THE POTUS SATANUS does the work of his master well. 666!
Silverbug 19
Silverbug 19 Jul 15, 2019 12:51PM ET
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So China is slowing at near 7% GDP but the US is expanding at barely 3%.
Bill Chan
Bill Chan Jul 15, 2019 9:31AM ET
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US economy just like game. No physical economy support will soon collapse. We no need US product cz we can get cheaper and quality products from China
Alex Fernandez
Alex Fernandez Jul 15, 2019 4:56AM ET
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Nobody listens to David Wong.
jims travelblog
jims travelblog Jul 15, 2019 4:56AM ET
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maybe David Wong is not controlled by a user, it is controlled by propagenda machine from China
jims travelblog
jims travelblog Jul 15, 2019 4:56AM ET
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it is funny that he tries to comment everything single post about China
David David
David9 Jul 15, 2019 4:56AM ET
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It is funny that I see the same folks reading anything about China. Lol
Bill Chan
Bill Chan Jul 15, 2019 4:56AM ET
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I support David Wong. he has the patient to answer those Trump-AI users here which is not understand human language
Bill Chan
Bill Chan Jul 15, 2019 4:56AM ET
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Alex, you just like a AI… I'm listening what David's comment which is human being. You guys just like a robot don't know the fact keep talking nonsense
Lynn McCord
the907man Jul 14, 2019 9:39PM ET
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Proud and brave Hongkongers in the streets today waving Hong Kong and American flags calling for democracy and liberty. The free world wishes them God speed and blessings. CCP can’t commit another Tianenmen Square massacre on 10s of thousands of Hongkongers. The world will never let that happen without fierce and irreversible consequences. The world will never forget Tiannmen Square, and ALL EYES are on Hong Kong right now.
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bomz bomzov
bomz bomzov Jul 14, 2019 9:39PM ET
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David David  communists are not chinese
David David
David9 Jul 14, 2019 9:39PM ET
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China is not communist. China has Socialist with chibese characteristics. It is working wonderfully for them, with 60% of population out of pverty in a decade time, and the second largest economy, looking to surpass the US to become number 1 in the horizon.
Maximus Maximus
Maximus Maximus Jul 14, 2019 9:39PM ET
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I've seen a few Union Jacks, but no American flags...
Bill Chan
Bill Chan Jul 14, 2019 9:39PM ET
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They have been used by those leader who get benefits from US. This is part of US strategy to press China
Bill Chan
Bill Chan Jul 14, 2019 9:39PM ET
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The biggest Communist party is China. Now China is taiko. Just the name is Communist, if you said Communist how come communist can be World 2nd large economy?
Diet Market
MarketLeader Jul 14, 2019 9:25PM ET
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bomz bomzov been living in the cage for decades, China today is the second most powerful nation on Earth and expected to eclipse USA within 10-15 years in terms of nominal GDP.
bomz bomzov
bomz bomzov Jul 14, 2019 9:25PM ET
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wish in one hand
Bill Chan
Bill Chan Jul 14, 2019 9:25PM ET
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if you mathematic no good. can use calculator
Sean Livingstone
Sean Livingstone Jul 14, 2019 9:19PM ET
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We are still living in the 1800s where the west still wants China to do badly and still claim China as harmful when the west kills and bombs more people and places.... Hypocrisy at its finest.
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David David
David9 Jul 14, 2019 9:19PM ET
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Warren Buffet said China has found it's secret sauce. Looks like China has a system that can rival the West. China is an emerging Power. Either countries accept this, or get left behind.
bomz bomzov
bomz bomzov Jul 14, 2019 9:19PM ET
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David David  China has a system that can rival the West. it is a theft
Joseph Abraham
Joseph Abraham Jul 14, 2019 9:19PM ET
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As iron sharpens iron so one nation does another. While China and the US are those two pieces of iron, I think the conflict we're experiencing will lead both nations to better cooprration amd growth. The issue in the US is intellectual property theft, and China refuses to acknowledhe it's a real crime or an issue at all.
Bill Chan
Bill Chan Jul 14, 2019 9:19PM ET
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Theft always blame other is theft to hide their behavior
Sean Livingstone
Sean Livingstone Jul 14, 2019 9:19PM ET
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bomz bomzov  China learned from the west on theft... don't believe? Ask Germany... how Americans made Nuclear bombs... :P
David David
David9 Jul 14, 2019 7:47PM ET
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China growing at 6.2%, that is still unbelievable. And it should bottomed out soon and the growth will pick back up and head into the 10% range again.
bomz bomzov
bomz bomzov Jul 14, 2019 7:47PM ET
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6% of total poverty and hunger
David David
David9 Jul 14, 2019 7:47PM ET
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bomz bomzov You still living in the 1970s. Lol
Pro Vidence
Providence Jul 14, 2019 7:47PM ET
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I believe below 10% will be the new norm. Nothing can grow forever close to 10%! At some point infrastructure is there, weak branches will emerge which need to be subsidized and lower growth (but prevent unemployment). China was a developing country for a long time and now enters the field of an industry nation with the same problems. Growth will drop below 5% within the next decade as domestic infrastructure is already built and increasing labor cost will cause preassure on export prices. Competition from other developing countries will further weight on exports and GDP growth will keep slowing down! That's the situation what always happened and China won't be an exemption of that process as its fundamental macro economics and transitory side effects for the transition of a developing country to an industry nation!
bomz bomzov
bomz bomzov Jul 14, 2019 7:47PM ET
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Pro Vidence  China is an appendage of West economies
Gary Gee
TheGman Jul 14, 2019 7:47PM ET
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sadly, distorted markets cause bubbles, and bubbles pop. If the government is pouring money into their markets, it means the market forces aren't working properly. short term sustained, long term collapse. it'll only get worse if local business get used to and depend on the sustained support of their gov't when local supply exceeds global demand.
 
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