[The biggest drag on the Chinese economy lies in trade, which grew powerfully over the past three decades but has stopped rising in recent months. Exports dipped 1.3 percent in June from a year earlier, the government said on Friday, and imports fell 7.3 percent.]
By
Keith Bradsher
 |
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A shopping mall in
Beijing. Retail sales and spending on infrastructure offered
bright spots in data that
otherwise showed slumping growth. Credit
Lam Yik Fei for The New
York Times
|
BEIJING
— China’s growth fell to its
slowest pace in nearly three decades, officials said on Monday, as a resurgence
of trade tensions with the United States and lingering financial problems take
an increasing toll on one of the world’s most vital economic engines.
Chinese officials said the economy grew 6.2
percent between April and June compared with a year earlier. While such
economic growth would be the envy of most of the world, it represented the
slowest pace in China since the beginning of modern quarterly record-keeping in
1992. That marks a significant slowdown from earlier this year, when growth
came in at 6.4 percent, matching a 27-year low reached during the global financial
crisis a decade ago.
Premier Li Keqiang set a target in March for
economic growth to be between 6 and 6.5 percent this year. The figures on
Monday fell within that range.
But much of the growth in the quarter may
have taken place in April and early May, when public confidence was higher
because of a tax cut in March and heavy infrastructure spending as spring
began. Trade talks broke down on May 10 and President Trump raised tariffs
sharply on Chinese goods, a step that damaged consumer confidence within China.
Growth early in the quarter also would have taken place before the contentious
government takeover of a bank in late May hurt financial confidence.
Chinese officials on Monday acknowledged that
conditions are becoming increasingly difficult.
“Economic conditions are still severe both at
home and abroad, the global economic growth is slowing down, the external
instabilities and uncertainties are increasing, the unbalanced and inadequate
development at home is still acute, and the economy is under new downward
pressure,” said Mao Shengyong, a spokesman for China’s National Bureau of
Statistics, in a news conference.
Mr. Mao downplayed the effects of trade,
saying China’s economy increasingly relies on consumption.
Monthly economic data, particularly for
imports, suggests that the second quarter started strong but then slowed.
“There was certainly a surge in activity through April,” said George Magnus, a
longtime specialist in the Chinese economy who is now at Oxford University.
“Something happened in May.”
The number may also understate the extent of
the slowdown. Economists widely doubt the veracity of the overall Chinese
growth figure, which shows far more stability than comparable numbers from the
United States and elsewhere.
A few sectors of the Chinese economy are
doing fairly well. The strongest sector appears to be the construction of
infrastructure, much of it paid for with money borrowed by local, provincial
and national government agencies. Retail sales ticked up as well.
The biggest drag on the Chinese economy lies
in trade, which grew powerfully over the past three decades but has stopped
rising in recent months. Exports dipped 1.3 percent in June from a year
earlier, the government said on Friday, and imports fell 7.3 percent.
While the trade war has hurt American
purchases from China, economic weakness in Europe and many Asian countries has
caused overseas demand to weaken far more broadly than just in the United
States. Last week, Singapore unexpectedly announced that its trade-dependent
economy had shrunk at an annualized rate of 3.4 percent in the second quarter.
“The economy is definitely in a broad
decelerating trend because the global economy is slowing down, so exports are
slowing down,” said Larry Hu, the chief China economist at Macquarie Capital,
the investment banking unit of a big Australian multinational.
China’s troubles have their roots not just in
trade but also in a debt-laden financial system that has been shaken by a
series of large shocks in the last few weeks.
On May 24, Chinese financial regulators took
over Baoshang Bank in Inner Mongolia, a small institution that is part of a
financial empire previously controlled by Xiao Jianhua, a financier who
disappeared into the custody of government investigators two years ago.
Regulators tried to force a few of its largest creditors to accept losses
rather than bailing them out as a way to teach financiers to be more careful
about where they put their institutions’ money.
Problems in some of the shadowy corners of
China’s financial system have also frightened investors. China’s shadow banking
system plays an important role in funding property projects and other private
business ventures. But managers of some riskier investment products have had a
hard time making high-interest payments to investors in recent weeks. In some
cases they have also had trouble even repaying principal.
These incidents have set off a broader shift
in recent weeks away from riskier investments. Institutions and households
alike have been putting money into larger, more stable financial institutions
run by the central government.
Big state-controlled banks have steered the
bulk of their lending to state-owned enterprises. That long-running trend has
hurt the real estate market and the broader private sector.
Regulators have repeatedly urged the big
banks to lend more to small businesses and the private sector, and Mr. Li, the
premier, did so again on July 2. But these exhortations have had limited effect
so far. Bank lending officers worry that they might be blamed, or even
investigated for corruption, if they extend large loans to struggling private
businesses that then default as the economy weakens.
Andrew Collier, the managing director and
founder of Orient Capital Research, a Hong Kong investment and economic
research firm, said that troubles at Baoshang and in the shadow banking system
had rattled financial markets but seemed to have been contained, at least so
far.
“The Chinese central bank is watching
carefully, and for now will use quiet means to avoid any shaky financial shenanigans,”
he said.
Economists are watching for other potential
warning signs, like inflation. Price increases have been tame, according to
official statistics. But many in China complain that the actual cost of living
is rising fast, particularly for food but also for rent and other daily
expenses.
Industrial production has weakened this year,
as has private sector investment. Housing sales have slowed, as buyers look
harder for bargains but sellers have been reluctant to cut prices. Car
factories have sharply reduced output in response to weak sales, although there
were signs last month that consumer interest in buying luxury automobiles may
finally be stabilizing.
The long-running trade war has prompted many
multinational companies to look at ways to shift supply chains elsewhere. But
many continue to invest in China to supply China’s own market as well as
others, especially in Asia.
“The Chinese government will continue to work
hard to create a more stable, fair, transparent and predictable investment
environment,” Gao Feng, spokesman for the Ministry of Commerce, said at a news
briefing on Thursday.
He later added that “China has not
experienced large-scale withdrawals of foreign capital.”
For now, though, the economy keeps running to
a considerable extent because the Chinese government is pumping huge sums of
money into infrastructure. It is building high-speed rail lines, immense highway
bridges, ports and other facilities to connect ever smaller and less affluent
cities and towns to the rest of the country.
That infrastructure is making it easier to do
business and move around even in some of the poorest and most remote areas of
China. But bankers and economists worry about whether some of these investments
will ever earn enough of a return to cover their cost.
“There’s a very weak commercial basis,” Mr.
Magnus said, “for this credit-fueled infrastructure spending.”
Keith Bradsher has been covering the Chinese
economy for The New York Times since 2002, as Hong Kong bureau chief and now as
Shanghai bureau chief. He previously served as Detroit bureau chief and as a
Washington correspondent covering trade and then monetary policy. Follow him on
Twitter: @KeithBradsher.
