China’s economic growth slides — and that could be bad news for U.S.
China’s economic growth sank to its lowest level in at least 26 years in the quarter that ended in June, adding to pressure on Chinese leaders as they fight a tariff war with Washington.
The world’s second-largest economy grew 6.2% compared with a year earlier, down from the previous quarter’s 6.4%, government data released Monday showed.
Hopes for an early growth rebound faded after President Trump raised tariffs on Chinese imports in May to turn up pressure on Beijing over the aggressive tactics it’s using to challenge American technological dominance. Now, economists say the slowdown might extend into next year.
Weaker Chinese activity carries global repercussions. China is the world’s second-biggest export market, behind the United States. Countries that feed raw materials to Chinese factories — from Chilean copper to Indonesian coal — are especially vulnerable to decelerating growth in China.
The proportion of South African output going to China, for instance, has shot up from 2% in the mid-2000s to 15% now, according to a study by the McKinsey Global Institute. Then there’s the Democratic Republic of the Congo, which sends 45% of its exports to China, according to United Nations data cited in the McKinsey report. In addition, emerging-market countries are increasingly dependent on Chinese investment.
Among major economies, Australia sent 35% of its exports to China in April, Brazil 30% and South Korea 24%, according to the Peterson Institute for International Economics.
Besides hurting countries that export raw materials to Beijing, the Chinese slowdown could come back to squeeze American companies such as Procter & Gamble and General Motors that sell into the vast Chinese consumer market. Slowing demand in China could depress their revenue, earnings and stock market value, said Mary Lovely, a Syracuse University economist who studies trade.
Eventually, weaker stock prices could undermine U.S. consumer confidence and the American economy, she said.
“President Trump is probably happy that he’s starting to tank the Chinese economy,” Lovely said. “But it’s a case of ‘be careful what you wish for.’”
IHS Markit foresees world economic growth slowing to 2.8% this year from 3.2% in 2018.
A decelerating Chinese economy “is certainly part of that,” said Sara Johnson, IHS’ executive director for global economics.
But the world faces other problems, too. For one thing, Trump’s tariffs on imports from a host of countries — and the retaliation they have drawn from America’s trading partners — are crimping world trade and investment.
Manufacturers worldwide are also sitting on unsold stockpiles of goods, and growth will probably slow as they pare their inventories, Johnson said.
Trump and Chinese President Xi Jinping agreed last month to resume negotiations on the fight that has battered exporters on both sides. But economists warn their truce is fragile because they still face the same array of disputes that caused talks to break down in May.
“The trade war is having a huge impact on the Chinese economy,” Edward Moya, a market analyst with Oanda, said in a report. “As trade negotiations struggle for meaningful progress, we are probably not near the bottom for China’s economy.”
Chinese leaders have stepped up spending and bank lending to keep growth within this year’s official target range of 6% to 6.5% and avert politically dangerous job losses. But they face an avalanche of unexpectedly bad news including plunging auto sales.
In the second half of the year, “the external environment may still be more complicated,” government spokesman Mao Shengyong said at a news conference.
Quarterly growth was the lowest since China began reporting such data in 1993, according to an employee of the press office of the National Bureau of Statistics, Dong Hui.
In 2009, the NBS reported growth of 6.1% for the first three months of that year. However, Dong said that later was revised up to 6.4%.
Jittery consumers are putting off major purchases, depressing demand for autos, home appliances and other goods.
“I don’t think the country’s economy is as good as it looks,” said Peng Tao, a 26-year-old delivery courier who said he makes about $750 to $870 a month.
“China has been surely hurt more in the trade war,” Peng said. “I am not very happy about job prospects because there just aren’t many opportunities out there.”
Weaker Chinese activity has global repercussions. China is the biggest export customer for its Asian neighbors and a major market for global suppliers of food, mobile phones, industrial technology and consumer goods.
The International Monetary Fund and private-sector economists have cut this year’s Chinese growth forecast to as low as 6.2%, a further marked decline after last year’s three-decade low of 6.6%.
Growth in retail sales slowed to 8.4% in the first half of 2019, down 0.1 percentage point from the first quarter, the government reported. Growth in factory output decelerated to 6% in the first half, down 0.1 percentage point from the first quarter.
Auto sales, reported earlier, fell 7.8% in June, extending a yearlong contraction in the industry’s biggest market. Chinese exports to the United States fell 7.8% in June from a year earlier.
Urban families that the ruling Communist Party is counting on to help propel consumer-driven growth to offset weak trade are being squeezed by rising living costs and slower wage growth.
Qiu Wanli, who works for an insurance company in the northwestern region of Xinjiang, said her family has little left over each month after paying a mortgage and expenses for her 3- and 6-year-old daughters and two elderly relatives.
“The burden to support the family is fairly heavy,” said Qiu, 30. “We rarely travel and have no plans to because of financial conditions.”
The fight between the two biggest global traders has disrupted sales of goods as diverse as soybeans and medical equipment and has rattled financial markets.
The biggest factor in the latest Chinese economic weakness is lackluster activity in construction and industry, said Julian Evans-Pritchard of Capital Economics. He said that will probably worsen because a boom in real estate development is fading.
“Combined with increasing head winds from U.S. tariffs and weaker global growth, we expect this to culminate in a further slowdown in economic growth over the coming year,” Evans-Pritchard said in a report.