China’s 2019 economic growth weakens amid trade war

BEIJING (AP) — China’s economic growth sank to a new multi-decade low in 2019 as Beijing fought a tariff war with Washington, but forecasters said a United States (US)-Chinese trade truce might help to revive consumer and business activity.

The world’s second-largest economy grew by 6.1 per cent, down from 2018’s 6.6 per cent, already the lowest since 1990, government data showed yesterday.

Growth in the three months ending last December held steady at the previous quarter’s level of six per cent over a year earlier.

Business sentiment received a boost from Wednesday’s signing of an interim deal in the costly war over Beijing’s technology ambitions and trade surplus.

The US President Donald Trump administration agreed to cancel planned tariff hikes on additional Chinese imports and Beijing promised to buy more American farm goods, though punitive duties already imposed by both sides stayed in place.

The Chinese downturn might not have bottomed out yet, but improved activity last December suggested the cooling of tensions might be encouraging companies and consumers to spend and invest, private sector economists said.

The agreement “is a signal that the situation is unlikely to deteriorate,” said Chaoping Zhu of JP Morgan Asset Management in a report.

“Corporate confidence keeps improving,” said Zhu. That might help to “provide strong support” to economic growth.

Workers make sneakers in a factory in Jinjiang city in southeastern China’s Fujian province. PHOTO: AP

Chinese exporters have been battered by President Donald Trump’s tariff hikes, but a bigger blow to the economy came from weakness in consumption.

Households, spooked by the trade war and job losses, put off big purchases. Auto sales fell for second year in 2019, tumbling 9.6 per cent. Growth in retail spending decelerated to eight per cent over a year earlier, down from 8.2 per cent in the first nine months of the year.

The economy faces “downward pressure” and “instability sources and risk points” abroad are increasing, the government said in a statement.

The trade war adds to pressure on Chinese leaders who also are struggling to shore up growth and rein in surging food costs following a disease outbreak that slashed supplies of meat and sent prices soaring.

The cost of meat spiked 42.5 per cent in 2019, propelling food price inflation to seven per cent, more than double the ruling party’s three per cent target.

Chinese exports ended 2019 up 0.5 per cent despite the tariff war and weaker global demand.

Manufacturers stepped up efforts to sell to other markets, recording double-digit gains in exports to France, Canada and other economies.

“Sluggish global growth will continue to challenge the external outlook, but we expect the phase one deal with the US to have a favourable impact on exports and support domestic sentiment and confidence,” said Louis Kuijs of Oxford Economics in a report.

The 2019 economic growth came in at the low end of the ruling party’s official target of six per cent to 6.5 per cent. The International Monetary Fund (IMF) and private sector forecasters expect this year’s growth to decline further to as low as 5.8 per cent. That would be barely one-third of 2007’s record 14.2 per cent expansion but still would be among the world’s strongest.

The party is trying to steer China to slower, more manageable growth, but an abrupt downturn in activity and the clash with Washington forced the ruling party to step up government spending and take other measures to support growth.

The central bank has tried to lower borrowing costs and channel credit to entrepreneurs who generate China’s new wealth and jobs. But Beijing has avoided a large-scale stimulus that might reignite a rise in debt that already is so high that rating agencies have cut its credit rating for government borrowing.

Factory output rose 5.7 per cent over 2018, down from six per cent for the first six months of the year.

“The outlook for 2020 is for continued resilient growth, boosted by the Phase One trade deal with the US and the continued positive impact” of government stimulus, said Rajiv Biswas of IHS Markit in a report.