The Chinese economy is displaying further signs of weakness, with data Tuesday showing the pace of investment slumping to a record low in the first seven months of the year while retail sales growth slowed.
Beijing faces a delicate balancing act, aiming to shift its growth driver away from investment and exports towards personal consumption, while at the same time battling a mountain of debt.
A trade brawl with Washington has added to the difficulties – the yuan and stock markets have tumbled in recent weeks – providing relief to exporters but hurting Chinese consumers.
US tariffs on $34 billion worth of Chinese goods, and retaliatory levies from Beijing, came into force in early July, with more tit-for-tat measures due next week.
But the extent of the conflict’s impact on China remains unclear, said National Bureau of Statistics spokeswoman Liu Aihua. Trade data last week showed exports holding up in July.
“The negative impact will be gradual, with the impact on the international economy and the global economy already emerging,” Liu said.
Output at factories and workshops expanded 6.0 per cent on-year in July, in line with June’s reading, according to the NBS, but short of the 6.3 per cent forecast in a Bloomberg News survey.
Steel production – a sore spot with the Trump administration – was especially strong in July with crude output climbing 7.2 per cent on-year to a record 81.24 million tonnes as producers ramped up production to take advantage of high prices.
The commodity’s price is at a six-year high as expectations for demand pick up and the government’s fight against pollution sees a number of plants shuttered.
Retail sales, a key gauge of domestic consumption, rose 8.8 per cent on-year in July, down from nine percent in June, and also missing estimates of 9.1 per cent growth.
“Domestic demand looks to have weakened further,” said Julian Evans-Pritchard of Capital Economics.
Fixed-asset investment, the lifeblood of China’s economy, expanded just 5.5 per cent in January-July, the slowest pace on record.
Last month China’s cabinet indicated it would step up its support for the economy and officials have said approval for infrastructure projects will quicken in the second half of the year.
‘Worse before it gets better’
But the International Monetary Fund has suggested Beijing should resist another round of aggressive stimulus to boost growth, citing concerns the measures would exacerbate already excessive debt levels.
“We see further downside risks to economic activity in the coming months given that credit growth is still slowing,” said Evans-Pritchard, forecasting Beijing’s easing moves could take months to kick in.
China’s economic growth slowed in the second quarter to 6.7 per cent, from 6.8 per cent in the first quarter.
“The Chinese economy will get worse before getting better, and it takes several months to turn around,” said Ting Lu, chief China economist at Nomura investment bank.
“Beijing will step up credit easing and fiscal measures to deliver a recovery and prevent financial troubles such as a rise of bond defaults,” Lu wrote in a research note.