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China Growth Cools Amid Trade Tensions 07/16 06:20

   China's economic growth slowed in the quarter ending in June, adding to 
challenges for Beijing as its tariff battle with Washington escalates.

   BEIJING (AP) -- China's economic growth slowed in the quarter ending in 
June, adding to challenges for Beijing as its tariff battle with Washington 

   The world's second-largest economy expanded by 6.7 percent over a year 
earlier, down from the previous quarter's 6.8 percent, the government reported 

   Key drivers of growth including spending on construction and other 
investments were weakening even before the dispute with Washington erupted. 
Forecasters have expected a slowdown since Beijing tightened lending controls 
last year to rein in surging debt.

   Growth was "generally stable" but "the uncertainties of the external 
environment are mounting," said Mao Shengyong, a spokesman for the National 
Bureau of Statistics.

   Chinese leaders have expressed confidence their $12 trillion-a-year economy 
can survive the tariff war with U.S. President Donald Trump. Beijing is 
resisting American pressure to change industrial policies Washington says are 
based on stealing or pressuring foreign companies to hand over technology and 
might threaten U.S. industrial leadership.

   But forecasters said the downturn is likely to deepen as Beijing tightens 
financial controls and trade tensions worsen.

   "There are risks that Chinese growth will slow more abruptly," Citigroup 
economists said in a report.

   Washington imposed an additional 25 percent tariff on $34 billion of Chinese 
goods on July 6. Beijing retaliated with similar penalties on the same amount 
of U.S. imports. Washington fired back last week with a threat of 10 percent 
tariffs on an additional $200 billion list of goods.

   Trade contributes less to China's economic growth than it did a decade ago 
but still supports millions of jobs. Even though Trump's first tariff hike 
didn't take effect the current quarter, exporters say American orders started 
to fall off as early as April.

   More broadly, anxiety about tariffs "is already dampening business 
confidence and delaying investment," said Louis Kuijs of Oxford Economics in a 

   Unless the two sides restart negotiations, "the conflict will escalate 
further, with major economic implications for themselves and the global 
economy," said Kuijs.

   Of greater concern than trade is "slowing domestic demand within China's 
economy," said Tom Rafferty of the Economist Intelligence Unit in a report.

   China is the No. 1 trading partner for its Asian neighbors and buys oil, 
iron ore and other raw materials from Australia, Brazil and elsewhere. Chinese 
consumers are an increasingly important market for food, clothes, electronics 
and other goods.

   Investment in factories, housing and other fixed assets decelerated in the 
latest quarter. It rose by 6 percent in the first half, down 1.5 percentage 
points from the first quarter.

   Chinese leaders are in the midst of a marathon effort to encourage 
self-sustaining growth driven by domestic consumption and reduce reliance on 
exports and investment.

   Beijing has responded to previous downturns by flooding the state-dominated 
economy with credit. But that has swelled debt, prompting concerns about risks 
to the banking system. The ruling Communist Party has made controlling 
financial risks a priority this year, suggesting it will resist easing lending 

   Consumer spending has risen more slowly than planned, leaving economic 
growth dependent on debt-supported investment.

   Retail spending in June rose by 9 percent over a year earlier, a 
half-percentage point higher than in May. The increase was driven by rapid 
growth in the sales of higher-end consumer goods such as cosmetics and 
audio-video equipment.

   Forecasters say if threatened tariff hikes by both sides are fully carried 
out, that could cut China's 2019 growth by up to 0.3 percentage points.

   Mao, the statistics bureau spokesman, declined to say how much the dispute 
might hurt Chinese economic growth.

   "But generally speaking, trade frictions unilaterally started by U.S. will 
have an impact on the economy of both countries," Mao said.


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