China’s economic growth dropped to its slowest annual rate since 1990 as the US trade war and policy decisions in Beijing hit consumer sentiment and capital expenditure.
Growth for the full year was 6.6 per cent, down from 6.8 per cent in 2017, the lowest level since the country faced international sanctions after the Tiananmen Square massacre.
Gross domestic product growth fell to 6.4 per cent in the fourth quarter, the lowest level since the global financial crisis. Growth has now slowed for three consecutive quarters, prompting concern among investors that the country could drag down the global economy.
China has adopted a series of fiscal and monetary stimulus measures since July that have failed to reverse the deceleration. Last week, the finance ministry outlined plans for additional tax cuts.
Markets across Asia-Pacific remained positive after the news, but most closed off their highest levels of the day. Mainland China’s CSI 300 closed up 0.6 per cent, with Hong Kong’s Hang Seng up 0.4 per cent. The Topix in Tokyo was 0.6 per cent higher and Sydney’s S&P/ASX 200 rose 0.2 per cent.
US tariffs on Chinese exports have not directly inflicted major damage on the country’s GDP, according to the data. But economists and corporate executives say the trade conflict has taken a heavy toll on sentiment, leading to a slowdown in consumer spending and capital expenditure.
“Aggregate data continue to portray a relatively benign picture that seems increasingly inconsistent with a sense of growing economic malaise and souring business, consumer and investor sentiment,” said Eswar Prasad, professor at Cornell University and former China head at the International Monetary Fund.
Growth of retail sales, a gauge of consumer spending, ticked up in December to 8.2 per cent but remains near the 18-year low of 8.1 per cent touched in November.
Ning Jizhe, director of China’s statistics bureau, on Monday sought to project confidence, noting that growth in China was still far higher than in the US, EU and Japan. But he also acknowledged the trade war hit.
“US-China trade friction indeed has an impact on economic performance . . . but we have overcome the overall influence,” he said.
Beyond the trade war, analysts said the deterioration in economic expansion was at least partly self-inflicted.
Beijing’s campaign to control financial risk by weaning the economy off its reliance on debt-fuelled stimulus contributed to a sharp slowdown in infrastructure spending, while also reducing access to credit for privately owned companies. A parallel effort to strengthen enforcement of environmental regulations fell heavily on private groups as well.
Economists expect Beijing to ramp up stimulus measures in the coming months, including additional cuts to banks’ required reserve ratio. But experts also warn that previous rounds of heavy stimulus have left policymakers with less flexibility to loosen credit, which would further swell the economy’s debt burden.
“China’s economy is muddling through: slowing, but not realizing the worst fears about downside risks to the global outlook,” William Adams, senior economist at PNC Financial Services, wrote on Monday.
