China posts steady growth in first quarter, but spectre of US trade war looms
China’s US$12 trillion economy maintained a steady 6.8 per cent expansion in the first quarter, but its prospects are darkened by an investment slowdown at home and a looming trade war with the United States.
Gross domestic product growth has now been stable between 6.7 and 6.9 per cent for 11 quarters, according to data released by the National Bureau of Statistics on Tuesday.
Consumption contributed to 77.8 per cent of first-quarter growth, far exceeding investment and exports, according to the bureau.
Output in the service sector accounted for 56.6 per cent, beating industrial production and agriculture.
Fixed-asset investment, a traditional pillar of growth, rose 7.5 per cent year-on-year in the January to March period, slowing from 7.9 per cent in the first two months, while property investment growth reached a three-year high of 10.4 per cent in the quarter.
“The bright spots lie in the expansion of the service sector and strong consumption, including domestic spending in the festive season and from inbound tourists,” said Iris Pang, chief Greater China economist of ING in Hong Kong
“There are still much-needed projects for investment, such as water management and transport networks, although the government has halted some projects to prevent local debt pile-ups,” she said.
The first-quarter data, however, did not factor in the threat of a trade war between Beijing and Washington, which escalated at the end of March, she said.
“Second-quarter trade remains worrisome. It’s not only a matter between China and the United States, but also could affect the global trade and investment,” she said.
“Exports remains important to the national economy, considering their links to sectors like manufacturing, packing and logistics.”
Macquarie Capital economists Larry Hu and Irene Wu wrote in a note that an economic slowdown is coming as capital spending is set to soften following Chinese President Xi Jinping’s instructions to local governments and state firms to cut debt levels.
While the trade disputes between the US and China will not affect economic fundamentals “investors could still use it an excuse to cut positions given the growth uncertainties”, the note said.
Zhang Jun, chief economist at Morgan Stanley Huaxin Securities, said the increase in property spending highlighted in the figures was unsustainable and could not reverse the deceleration in investment.
“The impact of the financial deleveraging campaign started from last year has now shown up in the real economy, with shadow financing declining faster than the increase in on-balance lending,” he said.
Zhang called for a further boost in manufacturing investment, with credit or tax incentives, to offset the uncertainties facing the export market, saying new capacity was needed after years of supply-side structural reforms.
Zhu Baoliang, chief economist at China’s State Information Centre, was quoted by the Chinese Economic Observer newspaper as saying on Monday that China might lose 2.5 percentage points of economic growth and 14 million non-farm jobs if its trade surplus with the US narrowed to zero.
Statistics bureau spokesman Xing Zhihong also said at a press briefing on Tuesday that “uncertainties in the international environment are rising”.
US President Donald Trump’s administration has proposed a 25 per cent tariff on US$50 billion worth of Chinese imports amid complaints about the alleged theft of US intellectual property by China.
China has responded with threatened charges on US imports.
There are signs of concessions from both sides, however.
Xi vowed in a speech last week to take further measures to open China’s economy to foreign investors, including in the financial sector.
He also pledged not to deliberately pursue international trades surpluses, adding that his administration would encourage more imports.
China has set a growth target of “about 6.5 per cent” this year, much lower than the 6.9 per cent expansion achieved in 2017, as it aims to defuse risks in its financial system and upgrade domestic industries by curbing overcapacity and encouraging innovation.
The World Bank said in a quarterly report last week that it has revised its forecast for China’s growth this year by 0.1 percentage points to 6.5 per cent.
Some analysts say the lack of volatility in the range of the GDP figures has reduced the relevance of the data in gauging the health of the world’s second biggest economy.
“Do we have a high degree of accuracy in quarter-to-quarter China GDP as other advanced economies? The answer is no,” said Arthur Kroeber, co-founder and research head of Gavekal-Dragonomics, a research firm. “Chinese government calculation about GDP is basically designed to reduce volatility”.
Kroeber said China’s economic growth rate was expected to slow over the next two or three years and a trade war with the US might knock off about 0.3 percentage points if it involved the US imposing tariffs on US$100 billion worth of Chinese imports.