China posts slowest economic growth in 27 years

BEIJING: China’s economic growth slowed to 6.2pc in the second quarter, its weakest pace in at least 27 years, as demand at home and abroad faltered in the face of mounting US 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-US 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 6.4pc, 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 6pc to 6.1pc 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 6-6.5pc.

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.

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.

Despite the trade dispute, net exports

accounted for a striking 20.7pc of the first-half GDP growth, as Chinese
exporters had rushed to sell ahead of higher US 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 5.8pc
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 6.3pc 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 5.2pc.

Daily output for crude steel and aluminum both

rose to record levels.

Retail sales jumped 9.8pc - the fastest since

March 2018 - and confounding expectations for a slight pullback to 8.3pc. Gains
were led by a 17.2pc 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 15.2pc, 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 5.8pc from a year earlier, compared with a 5.5pc forecast and
5.6pc in the first five months. Infrastructure expanded 4.1pc, with railways
continuing to grow in the double digits.

Real estate investment, a major growth driver,

also quickened in June, rising 10.1pc 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.”