By Keith Bradsher
China’s economy is slowing, and the slowdown is probably worse than Beijing says.
Official numbers released Monday show an economy that is posting new, but manageable, lows. For the last three months of 2018, growth came in at 6.4 per cent compared with a year earlier.
That’s the slowest pace since a decade ago, when China was grappling with the global financial crisis. For the full year, according to official data, the Chinese economy grew 6.6 per cent.
That is the weakest pace of growth since 1990, when China’s economic miracle stumbled in the aftermath of the crackdown on protesters in Tiananmen Square the year before. As slowdowns go, the numbers indicate a mild one befitting a big, maturing economy like China’s.
While the figures match historic lows, they show only a small drop from previous periods. Monthly data released Monday also suggested better-than-expected consumer spending and industrial production in December, raising the possibility that growth is stabilizing More detailed data tell a less positive story.
From investment to consumer spending to factory activity, the Chinese economy slowed markedly in the second half of the year.
The figures also indicate that the trade war with the United States is taking more of a bite Moreover, the December uptick comes in large part from Beijing’s efforts to get growth going again.
While China’s leaders have quite a few ways to juice growth if their current efforts are not enough, their options often come with tricky trade-offs that could add to the country’s debt problems or add to other imbalances plaguing the economy China’s slowdown is one of many reasons that the world economy is gradually decelerating.
At a briefing Monday afternoon at the start of the World Economic Forum meeting in Davos, Switzerland, the International Monetary Fund said that Germany, Italy, Mexico and Turkey each face slower growth in the year ahead than previously expected, for reasons particular to each country
“The world economy is growing more slowly than expected, and risks are rising,” said Christine Lagarde, managing director of the IMF. “Does that mean that a global recession is around the corner? No. But the risk of a sharper decline in global growth has certainly increased.
By the Numbers
Beijing took steps to rekindle growth at the end of last year, and it showed. Retail sales and industrial output ticked up in December from November, suggesting consumers and businesses alike were feeling a little better as the year came to an end.
But those monthly figures could not fully make up for a lackluster performance in the second half of the year.
Retail sales slowed markedly during those last six months, weighted by a steep tumble in activity at China’s car dealerships and broad weakness in smartphone sales. Investment in fixed assets like new factories and office buildings was anemic.
“China’s economy has slowed significantly in recent months,” said Louis Kuijs, a China specialist at Oxford Economics, a large consulting firm. More broadly, many economists have estimated that China’s slowdown is worse than the government’s figures show, citing more detailed data.
Some economists estimate growth is just a fraction of the headline figure, although most economists who crunch the figures say the number is only a percentage point or two lower.
The question now is whether an improvement in December will carry over to the start of 2019.
Despite the positive signs, China just two weeks ago decided to pump tens of billions of dollars into the financial system, suggesting that it sees a recovery as fragile at best.
China’s economic problems began before Trump began imposing tariffs on Chinese-made goods. That said, the trade war is not helping. Activity has also slowed lately at many export-oriented factories. Many rushed to ship goods to the United States before a feared increase in tariffs January 1 that did not end up happening, filling warehouses with surplus goods.
Many Chinese factories have eliminated overtime and looked for other ways to trim employment costs Economists at JP Morgan, the investment bank, on Monday slightly reduced their growth expectations for the first three months of the year, citing weaker-than-expected December trade figures.
“Manufacturing has sunk from buoy to anchor over the past two quarters,” the China Beige Book, an economic consulting firm, concluded in an analysis last month.
Driving the Slowdown
Some economists note that the biggest factor driving the weakness in retail sales in China, which by some estimates has accounted for half or more of the entire slowdown, is a sharp fall in auto sales.
Auto sales have been falling since summer, with sales in December down a precipitous 19 per cent from a year earlier. But China had a modest tax break for car buyers in 2016 that became smaller in 2017 and then disappeared entirely last year.
Those tax policies may have pulled ahead some demand to 2016 and 2017, leaving the market poised for a drop last year.
“It is because we had a high number in 2017 that the 2018 market has so much pressure,” Cui Dongshu, secretary-general of the China Passenger Cars Association, said in a phone interview
Sliding sales at car dealerships prompted a wave of production cuts at assembly plants across China.
That in turn cut into demand for auto parts, steel, glass and other materials
But help may be on the way. Lian Weiliang, vice chairman of the National Development and Reform Commission, said at a news conference last week that China would draft policies to “stabilize” consumption of cars and household appliances.
How Long Will It Last?
The Chinese government has allowed big-ticket projects like new subway lines in many cities to move forward, and it has pumped more money into the financial system. China’s leaders have also pledged to cut taxes to shore up sagging business sentiment.
The efforts “will boost the economy in the second half of this year,” said Shen Jianguang, chief economist at JD.com, a big Chinese online retailer.
One big option that China still has: help the housing market
Building and outfitting homes and other buildings represents as much as a quarter of the country’s economic activity by some estimates. China could take measures like loosening limits on mortgage lending and easing the ability of property developers to buy land and deal with their debt.
But that approach comes with dangers. The sector is already overbuilt and plagued with speculation, something Chinese authorities have long tried to contain
“Property easing will be used as a last resort, not a priority,” said Tao Wang, a China economist at the Swiss bank UBS.