China's 2019 economic growth weakens amid trade war

Photo: The Canadian Press

China’s economic growth sank to a new multi-decade low in 2019 as Beijing fought a tariff war with Washington, but forecasters said a U.S.-Chinese trade truce might help to revive consumer and business activity.

The world’s second-largest economy grew by 6.1%, down from 2018’s 6.6%, already the lowest since 1990, government data showed Friday. Growth in the three months ending in December held steady at the previous quarter’s level of 6% over a year earlier.

Business sentiment received a boost from Wednesday's signing of an interim deal in the costly war over Beijing's technology ambitions and trade surplus. The Trump administration agreed to cancel planned tariff hikes on additional Chinese imports and Beijing promised to buy more American farm goods, though punitive duties already imposed by both sides stayed in place.

The Chinese downturn might not have bottomed out yet, but improved activity in December suggested the cooling of tensions might be encouraging companies and consumers to spend and invest, private sector economists said.

The agreement "is a signal that the situation is unlikely to deteriorate,” said Chaoping Zhu of J.P. Morgan Asset Management in a report.

“Corporate confidence keeps improving,” said Zhu. That might help to “provide strong support” to economic growth.

Chinese exporters have been battered by President Donald Trump's tariff hikes, but a bigger blow to the economy came from weakness in consumption.

Households, spooked by the trade war and job losses, put off big purchases. Auto sales fell for second year in 2019, tumbling 9.6%. Growth in retail spending decelerated to 8% over a year earlier, down from 8.2% in the first nine months of the year.

The economy faces “downward pressure” and “instability sources and risk points” abroad are increasing, the government said in a statement.

The trade war adds to pressure on Chinese leaders who also are struggling to shore up growth and rein in surging food costs following a disease outbreak that slashed supplies of pork, the country’s staple meat, and sent prices soaring.

The cost of pork spiked 42.5% in 2019, propelling food price inflation to 7%, more than double the ruling party's 3% target.

Chinese exports ended 2019 up 0.5% despite the tariff war and weaker global demand.

Manufacturers stepped up efforts to sell to other markets, recording double-digit gains in exports to France, Canada and other economies.

“Sluggish global growth will continue to challenge the external outlook, but we expect the phase one deal with the U.S. to have a favourable impact on exports and support domestic sentiment and confidence,” said Louis Kuijs of Oxford Economics in a report.

What happens in China ripples across the globe. An economic lull in China reverberates in the many countries — from copper-producing Chile to iron ore-producing Australia — that feed Chinese factories with raw materials.

China's 2019 economic growth came in at the low end of the ruling party’s official target of 6% to 6.5%.

The International Monetary Fund and private sector forecasters expect this year's growth to decline further to as low as 5.8%. That would be barely one-third of 2007's record 14.2% expansion but still would be among the world's strongest.