China's growth slows to 6.5%; Finance officials try to calm worried investors
China's growth slows to 6.5%; Finance officials try to calm worried investors
BEIJING-The economic expansion of China it slowed down at its weakest pace since the financial crisis, as the main financial regulators launched an extraordinary coordinated effort to calm nervous investors.
According to official statistics released on Friday, the growth rate in the third quarter fell to 6.5%, falling below market expectations. The growth of industrial production and consumption weakened in the quarter, while exports remained despite the country's strong trade struggle with the United States.
Shortly before the publication of the data, the governor of the People's Bank of China, Yi Gang, the head of regulation of banking and insurance, Guo Shuqing, and the main police officer of values, Liu Shiyu, issued statements in which they urged the Investors to remain calm. Mr. Guo said recent "abnormal fluctuations" in the Chinese stock markets it does not reflect the economic foundations of the country and the "stable financial system". The Shanghai Composite Index, the worst performance among global benchmarks, has decreased by 25% so far this year. It fell to 1.1% after opening on Friday, but recovered in morning operations.
Restoring market confidence is proving to be one of the most difficult economic challenges for China's leadership. Shortly after the comments of the financial mandarins were published, the official Xinhua news agency published an interview with Deputy Prime Minister Liu He, the economic captain of President Xi Jinping, in which he said that the general economic situation remained stable. Mr. Liu tried to allay concerns about the impact of the trade conflict simmering with the United States in China.
"Frankly, the psychological impact is bigger than the actual impact," he said. "At this moment, China and the United States are in contact."
Washington and Beijing are preparing for a meeting between President Trump and Mr. Xi at the meeting of leaders of the Group of 20 in Buenos Aires at the end of November.
Quarterly growth of 6.5% is the lowest since the first quarter of 2009 and is mixed news for Chinese leaders, as they prepare for a prolonged trade dispute with Washington. While the economy is still on track to meet Beijing's full-year growth target of around 6.5%, third-quarter performance showed more signs of weakness: an escalation in industrial production, a slowdown in sales retailers, anemic investments and growing corporate breaches. That could limit Beijing's maneuverability when negotiating with the United States, whose economy is growing strongly.
"China's policy makers are trying to figure out how to react to the US trade agenda and they have less confidence in their position on the world stage compared to past cycles," says Bin Shi, Acadian portfolio manager. Asset Management in Boston. .
Growth in the third quarter slowed to 6.8% in the first half of this year. Part of the slowdown is due to Mr. Xi's initiative of the last two years to contain the debt and defend against financial risks. This risk control campaign has curbed the debt by local governments and companies and has caused a sharp drop in spending on new roads and factories. Although Beijing began loosening its strict control over credit in recent months, flexibilization measures have so far failed to rejuvenate investment in fixed assets, which has been a driver of growth for years.
If growth continues to decline, Chinese officials and government advisers say Beijing is ready to implement more growth-friendly measures, such as freeing more funds for banks to lend, increasing government spending on infrastructure and lowering tax rates. corporate However, such steps could further exacerbate the country's debt problems. As it stands, growing corporate and local government debts are threatening the long-term health of the second largest economy in the world.
"It is clear that the government is concerned about the loss of growth momentum," said Eswar Prasad, an economist at Cornell University who is consulting with Chinese officials. But the increase in financial risks could restrict China's ability to further facilitate its monetary policy, Prasad said. That suggests that "fiscal policy should play a stronger countercyclical role," he said.
With the palpable deceleration and a foot by the commercial fight, the Chinese consumers have been tightening their bonds. Retail sales increased by 9.3% in the first three quarters of 2018, a sharp drop from 10.4% in the same period of the previous year. The fall of this year in China's stock markets, according to economists and analysts, is also affecting consumers. Automobile sales, for example, It fell for the third consecutive month in September, putting the country on track for its first annual decline in passenger car sales in nearly three decades.
Exports, however, it was an unexpected bright spot In the third quarter. Shipments abroad of Chinese companies increased an average of 11.7% over the previous year, a slight improvement over the average monthly growth of 11.5% in the previous quarter.
However, much of that outbreak came from manufacturers competing to complete holiday orders and send goods before the commercial conflict worsens. That, in effect, is to borrow from future growth.
In Shanghai, Taijing International Freight Co., a shipping company, has been busy sending shipments of clothing, toys, appliances and other goods. "Some of them are definitely trying to complete the orders earlier than planned," said Pan Haitao, who runs the company.
"The current rate of export expansion is unsustainable," says Chinese economist Larry Hu at Macquarie Capital Ltd., an investment bank based in Sydney. Mr. Hu says that export growth will slow between 5% and 10% in the coming months.
The trade struggle between Washington and Beijing has extended beyond rhetoric in recent months to impose tariffs on a wide range of products from each country, with commercial fines now for $ 250 billion of Chinese products and $ 110 billion of United States products. Mr. Trump is threatening to raise the tariff rates in January to 25% of the current 10% on most of those goods and to place tariffs on an additional $ 257 billion of Chinese products, essentially subjecting all Chinese imports from the United States. United to such sanctions.
-Chao Deng and Liyan Qi contributed to this article.
Write to Lingling Wei in lingling.wei@wsj.com
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