Under the pressure of the trade war with the United States, China’s economic growth slowed down to 6.2% in Q2 2019. This means that the second-largest economy in the world is growing at the slowest pace in almost three decades. As the Beijing statistical office reported on Monday, the growth since the beginning of the year is still reaching a total increase of 6.3%, which is the weakest quarterly expansion since the start of quarterly data collection in 1992.
In June, the growth in factory production and retail sales outpaced expectations, while investments in the first half of the year provided new evidence that incentive measures to curb delays were being transposed across other months.
The Chinese economy recently reported surprisingly steady growth and gained 6.4% in the first quarter. But the downward pressure is getting stronger. Foreign trade fell by 2% since the beginning of the year and by around 4% in June. Also, industrial production has developed poorly for two consecutive months. As an additional sign of the weak economy is the stagnation of the producer prices.
Net exports contributed to 20.7% of economic growth in the first half, compared with 22.8% in the first quarter. Trade data released on Friday showed a weak end in the second quarter after both exports and imports reported declines.
Despite the economic slowdown in the second quarter, growth remains within the government’s cautious target in the range of 6.0-6.5% this year. Economic planners from Beijing are trying to stimulate the economy through tax cuts, loose monetary policy, and other measures.
However, this means that the genuinely needed fight against high indebtedness in China will continue to fall behind. According to analysts, the debt has grown to 271% of GDP against a 164% of GDP during the global financial crisis in 2008.
However, there has been no relief in the ongoing trade war between the two largest economies for a year now. The US President Donald Trump and Chinese leader Xi Jinping agreed at the end of June in the sidelines of the G20 summit in Osaka, Japan, to “ceasefire” and resume trade talks. But both sides can not yet find the way to a lasting solution to their dispute.
The decline in trade and investor uncertainty slows not only growth in China but also the US and damage the entire world economy. For example, German industry had to halve its expectations for growth in exports this year to 1%.
The reason for the trade war was Trump’s anger that China is exporting much more to the United States than to the contrary. He calls for the removal of market barriers, criticizing copyright violations, the transfer of technology to US companies operating in China, and state subsidies.
Since then, Trump has levied half of China’s imports with tariffs of 25%. China responded by counter-measures. For a concerted resumption of trade talks, the US president has promised in Osaka to postpone the planned imposition of the additional duties. But his threat still hovers in the air. He is considering 10% to 25% extra duties on the remaining Chinese imports worth about 300 billion USD.
Chinese leaders are starting to lose hope for a quick solution to the trade war. In the political circles in Beijing, the dispute is increasingly seen as the rivalry of the old US superpower against the growing Asian power – China. Experts view this as a race for technological leadership in the world, pointing out how the US treats China’s telecommunications giant Huawei. The United States has included the leading network equipment company and the second-largest manufacturer of smartphones on the blacklist due to security concerns. So American companies that want to do business with Huawei now need a special license. Deliveries must not “pose a threat to US national security”. After the initial general ban on deliveries, the door is again open for business. But the decision is not final.