China's GDP growth slows to 27-year low amid simmering trade war with US

Kevin Yao

China's economy has slowed to its lowest growth rate in almost three decades, suggesting the trade war with Donald Trump is taking its toll.

The world's second-largest economy expanded by 6.2 per cent in the second quarter compared with a year ago – the weakest reading since early 1992 when quarterly records began.

Demand for Chinese exports has faltered in the face of mounting US trade pressure. Washington sharply raised tariffs on Chinese goods in May and, although the two sides have since agreed to hold off on further punitive action and resume trade talks, they remain at odds over key issues.

The slackening of growth between April and June from 6.4 per cent in the first quarter was also caused by waning domestic demand.

Data on factory output and retail sales in June was more upbeat, offering signs of improvement towards the end of the second quarter, although some analysts warned the gains may not be sustainable.

"China's growth could slow to 6-6.1 per cent in the second half," said Nie Wen, an economist at Hwabao Trust, predicting the economy would continue to slow before stabilising around the middle of next year.

Despite the trade dispute, net exports accounted for over a fifth of China’s GDP growth in the first half of the year, as Chinese exporters had rushed to sell ahead of higher US tariffs and imports had weakened more sharply.

However, in June, both exports and imports fell.

"Due to the global slowdown and impact from the trade war, our exports will continue to fall and it's possible they may post zero growth for the year," said Zhu Baoliang, chief economist at the State Information Centre, a top government think tank.

Beijing has introduced a number of measures to stimulate the economy, including massive tax cuts announced earlier this year, but it has so far kept its powder dry on cutting interest rates. The central bank governor was quoted as saying in June that China has "tremendous" room to adjust policies if the trade war worsens.

And Beijing's earlier growth-boosting efforts may be starting to have an effect.

Industrial output climbed 6.3 per cent in June from a year earlier, data from the National Bureau of Statistics showed, picking up from May's 17-year low. Daily output for crude steel and aluminium both rose to record levels.

Retail sales jumped 9.8 per cent, led by a surge in car sales.

Some analysts, however, questioned the apparent recovery in both output and sales.

Capital Economics said its calculations suggested slower industrial growth last month, while the jump in car sales might have been partly due to a one-off factor.

Car dealers in China are offering big discounts to customers to reduce high inventories that have built up due to changing emission standards. Car manufacturing actually fell for the 11th consecutive month in June, suggesting car makers don't expect a sustained bounce in demand anytime soon.