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China Shows Signs Of Reeling Under Trade War, Weaker Demand Pressures

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China's industrial production grew at the weakest pace in 17-and-a-half years in August and the retail sales expansion slowed unexpectedly, while the government signaled that it will be hard to maintain growth above 6 percent, as the economy tries to cope with weakening global demand and the adverse effects of a trade war with the United States.

Industrial production increased 4.4 percent year-on-year, which was the weakest pace since February 2002, preliminary figures from the National Bureau of Statistics showed on Monday.

The latest pace of growth in production was the weakest since February 2002. Economists had expected the rate to improve to 5.2 percent from 4.8 percent seen in July.

Among the main categories, output in manufacturing grew 4.3 percent and that in mining industry rose 3.7 percent. Utilities production increased 5.9 percent.

Retail sales rose 7.5 percent annually in August after a 7.6 percent increase in July, separate data from NBS showed. Economists had expected sales to grow faster at 7.9 percent.

In the second quarter, China's economy expanded at the slowest pace in 27 years. GDP advanced 6.2 percent from previous year.

In an interview to Russia's state-run news agency TASS, published on Sunday, China's Premier Li Keqiang said the Chinese economy continues its sustainable expansion.

However, maintaining accelerated growth rates of more than six percent amid the uncertain global situation is quite a difficult task for a big economy like China, he added.

There has been hardly any let up in the trade tension between China and the U.S. The situation deteriorated significantly in August with the U.S. President Donald Trump proposing new tariffs on the remaining $300 billion Chinese goods.

Intensifying the trade tensions, Trump branded China a "currency manipulator" early August after the Chinese yuan fell below the psychologically significant value of seven against the U.S. dollar for the first time since 2008 on August 5.

Subsequently, the US Treasury assigned the currency manipulator status to China for the first time since 1994.

On September 1, previously announced tariffs on Chinese imports of around $112 billion took effect, in addition to the levy on the $250 billion worth of imports.

The Trump administration has also threatened additional tariffs on Chinese goods from October 1 and December 15.

China retaliated by imposing tariffs on some US imports and threatened more. On September 7, the People's Bank of China trimmed its reserve requirement ratio for a third time thus far this year to boost lending to support the slowing economy.

Economists also expect the PBoC to slash interest rates, as early as this week.

In other data released on Monday, fixed asset investment grew 5.5 percent year-on-year in the January to August period, which was slower than the 5.6 percent analysts had forecast.

Property investment increased 10.5 percent in the first eight months of the year versus 10.6 percent in the January to July period.

The national urban unemployment rate was 5.2 percent in August, down from 5.3 percent in July.

The global uncertainties have increased significantly and the structural contradictions in the domestic economy remain prominent, increasing the downward pressure on the economy, the NBS said.

"The August data is very weak even with massive infrastructure investment support," ING economist Iris Pang said.

"Even if there is continuous fiscal stimulus, the damage from the trade war will continue to be significant, and will hurt exporters further," she added.

The economist expects further stimulus from the government.

ING lowered its Chinese growth forecast for this year to 6 percent from 6.3 percent.

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