Sputtering growth, floating 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 ending in September compared with a year ago. Although global standards are fast, the pace is China’s slowest since the beginning of 2009, under the deepening of the global financial crisis.
China has reported growth over the past two years, which painted a picture of an old-age economy, despite the long-standing problems of the country and extensive doubts about the reliability of official numbers. Another story appears this year, one of a slower economy that forces Beijing to make some difficult choices.
China’s stock market is stuck in red – it has fallen more than a quarter since a peak in January – making it one of the world’s worst results. The currency has weakened and hovered close to a 10-year low against the US dollar. Companies complain that they can not get money from lenders, and a handful neglects their loans.
All this is before factoring in China’s intensive trade war with the United States. The Friday report is the first since the two countries began to introduce tit-for-tar tariffs starting in early July.
So far, it has only marginally dampened China’s 12 billion dollars. In recent weeks, Chinese officials have pointed to figures showing that total trade remains robust despite the conflict.
On Friday, Chinese officials introduced an unusual public to insure companies and investors that China was on the right track. They blame for the lower economic expectations than global factors, but said the government would take action to keep growth on course.
“We have no reason not to be convinced of the strong prospects for China’s economic development,” Liu He, China’s economic czar, told the official Xinhua news agency.
China’s stock market recovered from a Friday release following comments from Liu and other senior officials.
For China, the Growth Engine Grows Intricately
During periods of economic slowdown, China has turned to local governments for rapid growth through major infrastructure and development projects. This approach fueled growth but saddled important parts of the economy with debt.
The exact numbers are not clear, but experts agree that the debt burden is high. In a report this week, S & P Global judged that China’s local governments carry as much as 6 trillion dollars in shady debt from the books. It corresponds to approximately three fifths of China’s entire economic production. Analysts in the valuation company called it “an alarming level”.
China has attempted to repay lending, but it has damaged growth. The growth in the costs of motorways, railways and public premises has fallen to record low this year. From the beginning of the year to the end of September, the growth in infrastructure spending decreased to 3.3 percent compared with the same period last year, according to the National Bureau of Statistics.
Now Beijing seems to rethink its efforts. Officials begin to encourage new investments. They have added more money to the financial system. To reduce the bill, the private sector asks to help. This week, it announced that 1,222 infrastructure projects worth $ 362 billion would be financed by private companies.
Chinese consumer health is critical
China’s expansive middle class and its more expensive consumer habits have been an important pillar of growth, as China moves away from its dependence on exports and major investment projects.
The trade war could prove a move
In September, the US put a $ 200 billion taxi for products coming from China. President Trump has not stated that he will return anytime soon.
Chinese export data for September jumped 14.5 percent compared to one year earlier. The unlikely number is probably not a sign that the trade is going well. Some exporters suggested the increase to US companies to increase their orders before new tariffs make their purchases more expensive.
“We know that customers tried to clear as much finished product in transit to the US as possible before the deadline,” said Peter Levesque, CEO of modern terminals in Hong Kong. It may happen again because US importers try to circumvent the next January 1 deadline for a 25% duty on Chinese goods.
While much of the trade war’s impact is not yet known, experts say it does not take a long time for a slower economy to start to feel the gap, especially as officials get into other economic problems. The trade war could shave as much as 1.6 percent of China’s economic growth figures next year, according to a report from the International Monetary Fund.
“We will not be able to see it in the figures provided and it will only increase to the uncertainty,” says Paul Gruenwald, global economist at S & P Global Ratings. “It will be difficult to determine any pressure because we does not have enough data. “
However, he added,” there is definitely pessimism. It’s just a matter of how much it will slow down things. “
Officials Want to Increase Confidence
Just before releasing the economic growth figures on Friday morning, China Banking, Insurance and Securities Rules published media interviews with leading officials to support the market. The Chairman of the Securities Regulator went as far as to appeal to some market participants to buy shares.
“We encourage private equity funds to buy shares in listed companies and participate in mergers and acquisitions of listed companies,” said Liu Shiyu, chairman of the China Securities Regulatory Commission
Liu Han, the economic tsar, later said to Xinhua that trade franchises with the United States had hurt the stock market “but the psychological effect is greater than the actual impact, frankly. “
He added that the United States and China were in touch without elaborating. Trade talks will be suspended in September after the Chinese government declined an invitation by Finance Minister Steven Mnuchin to hold free talks.
Mr. Liu and Liu Shiyu went on Friday by Guo Shuqing, China’s highest bank regulator and Yi Gang, who runs China’s central bank, which publicly supports the market.
The coordinated effort of the four most important economic officials in China revealed a great deal of concern from the government, said Andrew Polk , a founder of Trivium, a consulting company in Beijing.
“It’s about having all the heavy hitters out there talking the markets to prevent people’s worries,” says Mr. Polk. “I find it very remarkable that they chose this strategy and something alarming.”
– Cao Li contributed to research.