China’s economy is hurting and a trade deal can’t come a moment too soon for Beijing

China’s official economic figures point to a bad year. Beijing has only one real way out of the slump – it needs to end the trade war with Washington. Vice-Premier Liu He, who visits the US this week, should hammer out a deal soon

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Talks continue, as (from the left) US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin meet Chinese Vice-Premier Liu He and central bank governor Yi Gang at the Diaoyutai State Guesthouse in Beijing on March 29. Photo: EPA-EFE

Published: 1:00am, 3 Apr 2019Updated: 5:57am, 3 Apr 2019

Deal or no deal, the ongoing US-China trade war has already taken its toll on the Chinese economy. The latest evidence is the decline in profits in China’s export-oriented manufacturing industry. In the first two months of the year, Chinese industrial firms’ profits fell 14 per cent year on year, to 708 billion yuan (US$105 billion), according to the latest data from the National Bureau of Statistics. It is the sharpest contraction since 2009.

Obviously, the trade war with the United States has dealt a severe blow to China, the world’s second-largest economy, and weighed on Chinese factory activity, corporate earnings, business and consumption.

The trade row halved China’s industrial profit growth, from 21 per cent in 2017 to 10.3 per cent in 2018. Some sectors were hit harder than others. Automobile industry profit fell 42 per cent in the first two months of the year, as vehicle sales dropped for eight straight months up to February.

Profit from the manufacturing of computers, communications and other electronic equipment plummeted by 21.6 per cent., and fell by 15.7 per cent for the broader manufacturing industry.

Weaker profits might cramp investment and growth, while also worsening manufacturers’ credit profiles. Such macro headwinds are likely to slow fixed-asset investment, with many industrial firms shelving their plans amid uncertainty. Indeed, fixed-asset investment for manufacturing rose less this year, by 5.9 per cent in January and February, compared with 9.5 per cent in the same period last year.

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