US economy

China quarterly economic growth slows to 6.5%


China reported its slowest quarterly growth figure in almost a decade on Friday, increasing the pressure on President Xi Jinping as his administration contends with the fallout from the continuing trade war with the US.

The world’s second-largest economy expanded 6.5 per cent year-on-year in the third quarter, marking China’s weakest quarterly growth figure since the depths of the 2008-09 global financial crisis.

The Chinese government, however, remains on track to exceed its full-year growth target of 6.5 per cent. The gross domestic product figure, reported by the National Bureau of Statistics, was lower than projections by many economists and analysts. 

“China’s slower but still strong headline growth masks rising domestic and external vulnerabilities that are likely to presage a further growth slowdown in the absence of concerted policy measures,” said Eswar Prasad, professor of trade policy at Cornell University in the US.

In its statement, the NBS said China faced an “extremely complex environment abroad and the daunting task if reform and development at home”. It added that the economy would experience “greater downward pressure” in future.

In a report earlier this week, the Chinese Academy of Social Sciences predicted the economy would grow 6.6 per cent in both the third quarter and for the full year, before slowing to 6.3 per cent in 2019.

“Rising US interest rates, the intensifying trade war and increasing risks in emerging economies will negatively affect China,” wrote the authors at Cass, a leading government think-tank. 

An official campaign against financial risk has been the biggest drag on China’s economy so far this year, dramatically slowing investment in infrastructure and property. The Cass report noted that central authorities appeared to have pulled the plug on more than 2,000 public-private partnership projects worth Rmb2.5tn. 

PPP projects had initially been encouraged by Beijing to spur flagging private sector investment, but their popularity faded amid fears that local governments were taking on costly projects they could not afford, such as a series of subway lines in small northern cities that have since been cancelled. 

Trading activity, by contrast, has been relatively strong. While US President Donald Trump has imposed tariffs on more than half of all Chinese exports to the US, the largest tranche was imposed in late September, with the next escalation not expected until January. 

“There hasn’t been any real impact from the trade war yet,” said Andrew Polk at Trivium, a Beijing-based consultancy. “There’s always another round of tariffs coming that traders want to front-run.” In one indication of this, Chinese exports increased more than 14.5 per cent year-on-year in the first three quarters. 

Chinese exports have also been supported by the booming US economy and a weakening renminbi, which has fallen 10 per cent against the dollar since April. 

Chinese officials are, however, increasingly worried that economic growth could slow faster than expected as more US tariffs come into effect early next year. In response, they have recently taken measures aimed at relieving some of the fiscal pressures building on local governments across the country. 

China’s central bank recently lowered the amount of reserves that Chinese lenders are required to keep on deposit, freeing up more than $100bn in additional financing.

Local governments have also been encouraged to issue more bonds to fund growth-boosting infrastructure projects, countering some of the effects of a long-running crackdown on the off-balance sheet vehicles they previously used to raise funds. 

Additional reporting by Xinning Liu



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