Chinese economy slows amid trade tensions

Marco Green
July 16, 2018

The prospect of greater tariffs in future is "already dampening business confidence and delaying investment", said Louis Kuijs, head of Asia economics at research firm Oxford Economics.

The world's second-biggest economy grew by 6.7% in the second quarter of the year.

Investment in fixed assets continued to slump in the first six months of the year, slowing to 6 percent, down 1.5 percent from the first quarter and marking the slowest pace since data collection began in 1999.

Correction: An earlier version of this article gave the incorrect year for China's growth target of 6.5%.

China's government is facing a multi-front battle to defend its economy, fighting to reduce the debt mountain while the yuan and local stock markets tumble in the face of the United States trade conflict.

The Shanghai Composite index and the blue-chip CSI300, the world's worst-performing major indexes this year, each fell over 0.7pc.

Emerging market stocks slipped - MSCI's index .MSCIEF fell 0.3 percent - on the softer China data while a tepid dollar boosted currencies.

On a quarterly basis, GDP in the second quarter grew 1.8 percent, compared with growth of 1.4 percent in January-March, the National Bureau of Statistics said.

The impact of tariffs on China's economy is likely to be felt in the second half of this year.

Washington and Beijing imposed tit-for-tat tariffs on $34 billion of goods this month and the United States raised the stakes last week by threatening to impose measures on another $200 billion worth of goods, prompting China to vow retaliation.

"The EIU is more concerned about slowing domestic demand within China's economy, with investment persistently weak and consumption also having slowed, and these are much more important drivers of growth than exports", he said in a research note.

"China's economy appears to be on a slowing path".

Some analysts are calling for even stronger measures.

"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".

The figures came in line with market forecasts, but new data showing slower-than-expected growth in China's industrial output pointed to slowing momentum.

But that data also includes government spending and is pushed up when net exports are a negative factor as they have been this year. The surveyed jobless rate in June was unchanged from May at 4.8pc.

Over the past decade, about 20 per cent of China's exports have gone to U.S. markets, according to Moody's Investors Services, with exports still accounting for a sizeable chunk of the giant economy.

EU-CHINA TRADE: European Council President Donald Tusk, while on a visit to Beijing, urged President Donald Trump, Russian President Vladimir Putin and China to work with Europe to avoid trade wars and prevent conflict and chaos.

"If the U.S. and China do not resume talks in the next two months or so, the conflict will escalate further, with major economic implications for themselves and the global economy".

Other reports by Click Lancashire

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