The Chinese economy expanded at a slower pace in the second quarter of the year as Beijing’s efforts to contain debt hurt activity, while factory output growth last month weakened to a two-year low in a worrying sign for investment and exporters as a trade war with the US intensified.
The world’s second-largest economy grew 6.7 percent from the same period last year — matching expectations — and looks set to meet the official growth target for this year of around 6.5 percent, although the trade row with Washington, a slowing property market and lower shipments have sharply increased the risks to the outlook.
“We expect growth in H2 to be challenged by the slow credit growth and softer real estate activity,” Oxford Economics head of Asia economics Louis Kuijs wrote in a note. “Also, the intensifying trade conflict with the US will start to weigh on growth.”
The second-quarter GDP figure was slightly below the first quarter’s 6.8 percent, the Chinese National Bureau of Statistics said yesterday, with net exports making a dent on overall first-half economic growth.
As the trade tussle with Washington shows no signs of ebbing and the external sector continues to weigh on China’s economy, more timely monthly activity data indicated that growth was slowing at a faster pace going into the second half of the year.
First-half fixed asset investment growth was at a record low, while industrial output last month matched the slowest growth rate in more than two years at 6 percent and missed forecasts centered on 6.5 percent expansion.
The data weighed on Asian markets, adding to concerns about the impact from the Sino-US trade war on economic growth in China and the rest of the world.
The Shanghai Composite index and the blue-chip CSI300, the world’s worst-performing major indices this year, each fell more than 0.7 percent. MSCI’s broadest index of Asia-Pacific region shares outside Japan fell 0.5 percent.
On a quarterly basis, growth picked up 1.8 percent from 1.4 percent in the first quarter, beating expectations of 1.6 percent growth.
China’s economy has already felt the pinch from a multi-year crackdown on riskier lending that has driven up corporate borrowing costs, prompting the People’s Bank of China to pump out more cash by cutting reserve requirements for lenders.
Data on Friday showed that China’s exports grew at a solid pace last month, although analysts have suggested that front-loading of shipments ahead of tariffs taking effect might have boosted the figures.
US President Donald Trump’s administration has raised the stakes in its trade row with China, saying that it would slap 10 percent tariffs on an additional US$200 billion of Chinese imports.
That threat came only days after both countries slapped tit-for-tat tariffs on US$34 billion worth of each other’s goods.
The property market, one of the economy’s key drivers, also slowed as property investment posted its weakest growth in six months, with sales also cooling.
Faced with a slowdown in domestic demand and the trade war risks, Chinese policymakers have started to step up policy support for the economy and softened their stance on deleveraging.
Some analysts are calling for even stronger measures.
“They need to slow financial deleveraging slightly and to turn their focus more on growth-supportive measures, for example increasing liquidity through [bank reserve requirement] cuts,” ING Hong Kong greater China economist Iris Pang (彭藹嬈) said.
“If the situation gets worse a lot faster than what we expect I do think Chinese authorities need to beef up supportive measures, both fiscal and monetary,” Pang said.
There could also be some reprieve from a sharp slowdown in investment, as statistics bureau spokesman Mao Shengyong (毛盛勇) yesterday told reporters that he expects more infrastructure projects to be launched after the government completes its inspections of local government debt.
Fixed asset investment in infrastructure grew 7.3 percent in the first half of the year, compared with 21.1 percent in the same period last year.
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