Sputtering growth, soaring debt and an escalating trade war with the United States are increasingly weighing on China’s economy.
China’s government on Friday reported that the economy grew by 6.5 percent over the three months that ended in September compared with a year ago. While fast by global standards, the pace is China’s slowest since 2009, during the depths of the global financial crisis.
China has reported growth figures over the past two years that painted a picture of an economy that is gamely chugging along, despite the country’s lingering problems and widespread doubts over the reliability of official numbers. A different narrative has emerged this year, one of a slowing economy that is forcing Beijing to make some difficult choices.
Chinese shoppers are spending less and downgrading their purchases, like staying home instead of going out, or drinking beer instead of cocktails. Wages are stagnant. Investment in splashy infrastructure projects has dropped sharply.
China’s stock market is firmly in the red — it has fallen by 30 percent since a peak in January — making it one of the world’s worst performing. The currency has weakened and is hovering near a 10-year low against the American dollar. Companies are complaining that they cannot get money from lenders, and a handful are defaulting on their loans.
All of this is before factoring in China’s intensifying trade war with the United States. Friday’s report is the first since the two countries began to impose tit-for-tat tariffs starting in early July.
So far it has only marginally dented China’s $ 12 trillion economy. Chinese officials point to figures that show overall trade remains robust despite the conflict. Still, the impact may take some months to show.
These are some takeaways from the report.
For China, revving up the growth engine is complicated
During periods of economic slowdown, China has turned to local governments to spur growth through big infrastructure and development projects. That approach juiced growth but saddled key parts of the economy with debt.
The exact numbers aren’t clear, but experts agree that the debt load is vast. In a report this week, S&P Global estimated that China’s local governments are carrying as much as $ 6 trillion in shadowy debt off the books. That’s equivalent to roughly three-fifths of China’s entire economic output. Analysts at the ratings firm called it “an alarming level.”
China has been trying to throttle back the lending, but that has hurt growth. Growth in spending on highways, rail and public facilities has fallen to a record low this year. From the start of the year through the end of August, the growth in infrastructure spending fell to 4.2 percent compared with the same period last year, according to the National Bureau of Statistics.
Now, Beijing appears to be rethinking its austerity efforts. Officials are beginning to encourage new investment. To reduce the bill, they are asking the private sector to help out. This week it announced that 1,222 infrastructure projects worth $ 362 billion would be financed by private companies.
The health of the Chinese consumer is critical
China’s expanding middle class and its increasingly expensive consumption habits have been an important pillar for growth as China moves away from its dependence on exports and big investment projects.
Retail sales stayed buoyant as Chinese consumers continued to buy cars, appliances, smartphones and other goods. The strong numbers will help officials in Beijing to argue that the trade war has left China’s domestic economy largely untouched.
But economists warn that the overall rosy picture could change. For example, car sales began to slow in September, according to the China Passenger Car Association.
“A month from now may be just the time retailers start to buckle,” wrote analysts at China Beige Book International. The group, which surveys big businesses in China, said retailers reported the worst payroll health of any sector in recent months.
Retail numbers could also fall as Beijing cracks down on non-bank lenders and peer-to-peer lending platforms, which have been a source of credit for many consumers in recent years.
The trade war could prove a drag
In September, the United States put tariffs on $ 200 billion worth of products coming from China. President Trump has given no indication that he will back down any time soon.
Chinese export figures for September jumped 14.5 percent compared with a year earlier. That unlikely number probably isn’t a sign that trade is doing well. Some exporters attributed the rise to American companies ramping up orders before new tariffs make their purchases more expensive.
“We know customers tried to clear as much finished product in transit to the U.S. as possible before the deadline,” said Peter Levesque, the managing director of Modern Terminals in Hong Kong. That could happen again, as American importers try to bypass the next deadline of Jan. 1 for a 25 percent tariff on Chinese goods.
While much of the impact of the trade war has yet to be felt, experts say it won’t take long for a slowing economy to start to feel the pinch, especially as officials grapple with other economic problems. The trade war could shave as much as 1.6 percent off China’s economic growth figures next year, according to a recent report from the International Monetary Fund.
“We’re not going to be able to see it in the numbers that are provided and that will just add to the uncertainty,” said Paul Gruenwald, global chief economist at S&P Global Ratings. “It’s going to be hard to pinpoint any pressure because we don’t have enough data.”
But, he added, “there is definitely pessimism. It’s just a question of how much it will slow things down.”
— Cao Li contributed research.
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