New York Times
(See my quote below)
July 15, 2019
A shopping mall in Beijing. Retail sales and
spending on infrastructure offered bright spots in data that otherwise showed
slumping growth.CreditLam Yik Fei for The New York Times
A shopping mall in Beijing. Retail sales and
spending on infrastructure offered bright spots in data that otherwise showed
slumping growth.CreditCreditLam Yik Fei for The New York Times
By Keith Bradsher
BEIJING — China’s
growth fell to its slowest pace in nearly three decades, officials said on
Monday, as a resurgence of trade tensions with the United States and lingering
financial problems take an increasing toll on one of the world’s most vital
economic engines.
Chinese officials
said the economy grew 6.2 percent between April and June compared with a year
earlier. While such economic growth would be the envy of most of the world, it
represented the slowest pace in China since the beginning of modern quarterly
record-keeping in 1992. That marks a significant slowdown from earlier this
year, when growth came in at 6.4 percent, matching
a 27-year low reached during the
global financial crisis a decade ago.
Premier Li
Keqiang set a target in March for economic growth to
be between 6 and 6.5 percent this year. The figures on Monday fell within that
range.
But much of the growth in the quarter may have taken place
in April and early May, when public confidence was higher because of a tax cut
in March and heavy infrastructure spending as spring began. Trade talks broke down on May 10 and
President Trump raised tariffs sharply on Chinese goods, a step that damaged
consumer confidence within China. Growth early in the quarter also would have
taken place before the contentious government takeover of a bank in late May
hurt financial confidence.
Chinese officials on Monday
acknowledged that conditions are becoming increasingly difficult.
“Economic conditions
are still severe both at home and abroad, the global economic growth is slowing
down, the external instabilities and uncertainties are increasing, the
unbalanced and inadequate development at home is still acute, and the economy
is under new downward pressure,” said Mao Shengyong, a spokesman for China’s
National Bureau of Statistics, in a news conference.
Mr. Mao downplayed
the effects of trade, saying China’s economy increasingly relies on
consumption.
But President Trump, in a Twitter message on
Monday about the economic data, said that tariffs on Chinese goods “are having
a major effect on companies wanting to leave China for non-tariffed countries.”
“Thousands of
companies are leaving,” he said. “This is why China wants to make a deal with
the U.S.”
Monthly economic data, particularly for imports, suggests
that the second quarter started strong but then slowed. “There was certainly a
surge in activity through April,” said George Magnus, a longtime specialist in
the Chinese economy who is now at Oxford University. “Something happened in
May.”
A used car dealership in Beijing. Auto sales
have slumped badly.
A used car dealership in Beijing. Auto sales
have slumped badly.CreditLam Yik Fei for The New York Times
The number may also understate the extent of the slowdown.
Economists widely doubt the veracity of the overall Chinese growth figure,
which shows far more stability than comparable numbers from the United States
and elsewhere.
A few sectors of the
Chinese economy are doing fairly well. The strongest sector appears to be the
construction of infrastructure, much of it paid for with money borrowed by
local, provincial and national government agencies. Retail sales ticked up as
well.
The biggest drag on
the Chinese economy lies in trade, which grew powerfully over the past three
decades but has stopped rising in recent months. Exports dipped 1.3 percent in
June from a year earlier, the government said on Friday, and imports fell 7.3 percent.
While the trade war
has hurt American purchases from China, economic weakness in Europe and many
Asian countries has caused overseas demand to weaken far more broadly than just
in the United States. Last week, Singapore unexpectedly announced that its
trade-dependent economy had shrunk at an annualized rate of 3.4 percent in the
second quarter.
“The economy is
definitely in a broad decelerating trend because the global economy is slowing
down, so exports are slowing down,” said Larry Hu, the chief China economist at
Macquarie Capital, the investment banking unit of a big Australian
multinational.
China’s troubles have
their roots not just in trade but also in a debt-laden financial system that
has been shaken by a series of large shocks in the last few weeks.
On May 24, Chinese financial regulators took over Baoshang
Bank in Inner Mongolia, a small institution that is part of a financial empire
previously controlled by Xiao Jianhua, a financier who disappeared into the custody of government investigators two
years ago. Regulators tried to force a few of its largest creditors to accept
losses rather than bailing them out as a way to teach financiers to be more
careful about where they put their institutions’ money.
Problems in some of
the shadowy corners of China’s financial system have also frightened investors.
China’s shadow banking system plays an important role in funding property
projects and other private business ventures. But managers of some riskier
investment products have had a hard time making high-interest payments to
investors in recent weeks. In some cases they have also had trouble even
repaying principal.
These incidents have
set off a broader shift in recent weeks away from riskier investments.
Institutions and households alike have been putting money into larger, more
stable financial institutions run by the central government.
Big state-controlled banks have steered the bulk of their lending to state-owned enterprises. That long-running trend has hurt the real estate market and the broader private sector.
The Chinese economy has come to rely largely on government investment in infrastructure projects.
Regulators have
repeatedly urged the big banks to lend more to small businesses and the private
sector, and Mr. Li, the premier, did so again on July 2. But these
exhortations have had limited effect so far. Bank lending officers worry that
they might be blamed, or even investigated for corruption, if they extend large
loans to struggling private businesses that then default as the economy
weakens.
Andrew Collier, the
managing director and founder of Orient Capital Research, a Hong Kong
investment and economic research firm, said that troubles at Baoshang and in
the shadow banking system had rattled financial markets but seemed to have been
contained, at least so far.
“The Chinese central bank is watching carefully, and for now
will use quiet means to avoid any shaky financial shenanigans,” he said.
Economists are
watching for other potential warning signs, like inflation. Price increases
have been tame, according to official statistics. But many in China complain
that the actual cost of living is rising fast, particularly for food but also
for rent and other daily expenses.
Industrial production
has weakened this year, as has private sector investment. Housing sales have
slowed, as buyers look harder for bargains but sellers have been reluctant to
cut prices. Car factories have sharply reduced output in response to weak sales,
although there were signs last month that consumer interest in buying luxury
automobiles may finally be stabilizing.
The long-running
trade war has prompted many multinational companies to look at ways to shift supply chains elsewhere. But
many continue to invest in China to supply China’s own market as well as
others, especially in Asia.
“The Chinese
government will continue to work hard to create a more stable, fair,
transparent and predictable investment environment,” Gao Feng, spokesman for
the Ministry of Commerce, said at a news briefing on Thursday.
He later added that
“China has not experienced large-scale withdrawals of foreign capital.”
For now, though, the
economy keeps running to a considerable extent because the Chinese government
is pumping huge sums of money into infrastructure. It is building high-speed
rail lines, immense highway bridges, ports and other facilities to connect ever
smaller and less affluent cities and towns to the rest of the country.
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That infrastructure
is making it easier to do business and move around even in some of the poorest
and most remote areas of China. But bankers and economists worry about whether
some of these investments will ever earn enough of a return to cover their
cost.
“There’s a very weak commercial basis,” Mr. Magnus said,
“for this credit-fueled infrastructure spending.”
Keith Bradsher has been covering the Chinese economy for The New
York Times since 2002, as Hong Kong bureau chief and now as Shanghai bureau
chief. He previously served as Detroit bureau chief and as a Washington
correspondent covering trade and then monetary policy. Follow him on
Twitter: @KeithBradsher.