China’s econ­omy slows in first quar­ter; of­fi­cial data on Tues­day

Financial Chronicle - - PLAN, POLICY - LIL­LIAN DING & RYAN MCMORROW

BEI­JING: China’s econ­omy slowed slightly in the first quar­ter as the gov­ern­ment bat­tles debt and fi­nan­cial risk, with US trade fric­tions threat­en­ing to fur­ther hob­ble growth, an­a­lysts sur­veyed by AFP said.

The world’s sec­ond largest econ­omy is ex­pected to have grown 6.7 per cent in the Jan­uary-March pe­riod, down from 6.8 per cent in the fourth quar­ter of last year, ac­cord­ing to the poll of 13 econ­o­mists ahead of the re­lease of of­fi­cial fig­ures on Tues­day. An­a­lysts link the de­cel­er­a­tion to Bei­jing’s ef­forts to rein in the coun­try’s mas­sive debt pile and fi­nan­cial haz­ards, as well as a slow­ing prop­erty mar­ket.

Fears of a trade war with the US have also roiled mar­kets in re­cent weeks, with Wash­ing­ton and Bei­jing ex­chang­ing warn­ings of tit-for­tat tar­iffs on a sig­nif­i­cant por­tion of their bi­lat­eral trade.

But the ten­sions – stoked by US pres­i­dent Don­ald Trump’s threat last week to tar­get an ad­di­tional $100 bil­lion in Chi­nese goods – have yet to cause real harm to the econ­omy, an­a­lysts say.

“The trade ten­sion has not im­pacted on GDP growth yet, and the trade data is still ro­bust,” said Li­gang Liu, chief China econ­o­mist at Citibank. “If the ten­sions con­tinue, China’s trade com­pet­i­tive­ness may be un­der­mined, weigh­ing on GDP growth,” Liu added.

Trade data re­leased by Bei­jing on Fri­day re­in­forced that mes­sage with China’s trade sur­plus with the US surg­ing by a fifth in the first three months of the year. There are also signs eco­nomic growth could come in above the 6.7 per cent fore­cast by AFP’s sur­vey. The fig­ure is above the gov­ern­ment’s of­fi­cial tar­get of around 6.5 per cent for 2018.

“China will re­lease its eco­nomic quar­terly data, which are even bet­ter than ex­pected, that shows a good sign for this year,” cen­tral bank chief Yi Gang said on Thurs­day.

“The global out­look con­tin­ues to im­prove,” Yi said at a Bei­jing fo­rum on China’s mas­sive ‘belt and road’ trade in­fra­struc­ture ini­tia­tive.

Chi­nese pres­i­dent Xi Jin­ping this week struck a con­cil­ia­tory note on trade, promis­ing to cut tar­iffs on cars – a key point of US anger – and other im­ports, as well as fur­ther open up the econ­omy, which drew a warm re­sponse from Trump.

But China’s com­merce min­istry later re­it­er­ated that no ne­go­ti­a­tions were un­der­way be­tween the two cap­i­tals as Wash­ing­ton had not shown enough “sin­cer­ity”.

Trump, how­ever, said “we are hav­ing some great dis­cus­sions”, though he showed no sign of back­ing down on his threat to im­pose tar­iffs on a to­tal $150 bil­lion worth of Chi­nese goods.

The threat­ened levies would dent eco­nomic growth on both sides of the Pa­cific, an­a­lysts say. “The im­pli­ca­tions of such a widerang­ing tar­iff war would be sig­nif­i­cant,” wrote econ­o­mists at Fitch Rat­ings in a re­port, adding that gross do­mes­tic prod­uct in both coun­tries could be pulled down by two per­cent­age points over two years.

Only $3 bil­lion in goods have been hit with tar­iffs in the es­ca­lat­ing spat so far, with the US tar­get­ing steel and alu­minium while China takes aim at pork, wine and other Amer­i­can prod­ucts.

Along with ex­ports, debt­fu­elled in­vest­ment has driven China’s econ­omy over the last decade – but with fears grow­ing over a pos­si­ble credit cri­sis, of­fi­cials in Bei­jing are step­ping up their bat­tle against debt and fi­nan­cial risk.

How­ever, an­a­lysts say the bat­tle will take a toll on growth. “China is com­mit­ted to a se­ri­ous fi­nan­cial delever­ag­ing over the span of 20182020, with a fo­cus to crack down on fi­nan­cial ex­cesses in lo­cal gov­ern­ments and state-owned en­ter­prises,” said Hao Zhou, an econ­o­mist at Com­merzbank. “The over­all eco­nomic pol­icy has be­come less favourable for eco­nomic growth,” he said.

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