China Growth Slows to 6.5%; Finance Officials Try to Soothe Worried Investors -- Update
October 18 2018 - 11:36PM
Dow Jones News
By Lingling Wei
BEIJING-- China's economic expansion slowed to its weakest pace
since the financial crisis, as top financial regulators launched an
extraordinary coordinated effort to calm jittery investors.
The rate of growth in the third quarter dropped to 6.5%, falling
short of market expectations, official statistics released Friday
showed. Growth in industrial output and consumption weakened in the
quarter, while exports held up despite the country's bruising trade
fight with the U.S.
Shortly before the data was released, People's Bank of China
Gov. Yi Gang, banking and insurance regulatory chief Guo Shuqing
and top securities cop Liu Shiyu all issued statements urging
investors to remain calm. Mr. Guo said recent "abnormal
fluctuations" in Chinese stock markets don't reflect the country's
economic fundamentals and "stable financial system." The Shanghai
Composite Index--the worst performer among global benchmarks--has
declined 25% so far this year. It fell as much as 1.1% after
opening Friday, but rebounded in late morning trading.
The 6.5% growth is the lowest since the first quarter of 2009
and is mixed news for Chinese leaders as they brace for a prolonged
trade conflict with Washington. While the economy remains on track
to meet Beijing's full-year growth target of about 6.5%, the
third-quarter performance showed more signs of weakness--a
scaleback of industrial production, slowing retail sales, anemic
big-ticket investments and rising corporate defaults. That could
limit Beijing's room to maneuver when negotiating with the U.S.,
whose economy is growing robustly.
"China's policy makers are trying to figure out how to react to
the U.S.'s trade agenda and are less confident about their standing
in the global arena compared with the past cycles," says Bin Shi, a
portfolio manager at Acadian Asset Management in Boston.
Third-quarter growth decelerated from 6.8% in the first half of
this year. Part of the slowdown is due to President Xi Jinping's
initiative of the past two years to contain debt and fend off
financial risks. That risk-control campaign has curbed borrowing by
local governments and businesses alike and caused a sharp falloff
in spending on new roads and factories. Even though Beijing started
to loosen its tight-fisted control on credit in recent months,
easing measures so far have failed to rejuvenate fixed-asset
investment, which has been a growth engine for years.
If growth continues to diminish, Chinese officials and
government advisers say Beijing is ready to roll out more
pro-growth measures, such as releasing more funds for banks to make
loans, stepping up government spending on infrastructure and
lowering corporate tax rates. However, such steps could further
exacerbate the country's debt problems. As it is, soaring corporate
and local-government debts are threatening the long-term health of
the world's second-largest economy.
"The government is clearly getting concerned about the loss of
growth momentum," said Eswar Prasad, a Cornell University economist
who consults with Chinese officials. But rising financial risks
could constrain China's ability to ease its monetary policy
further, Mr. Prasad said. That suggests "fiscal policy ought to
play a stronger countercyclical role," he said.
With the palpable slowdown and a pall cast by the trade fight,
Chinese consumers have been tightening their purse strings. Retail
sales grew 9.3% in the first three quarters of 2018, a sharp drop
from 10.4% in the year-earlier period. This year's plunge in
China's stock markets, according to economists and analysts, is
also taking a toll on consumers. Car sales, for instance, fell for
a third straight month in September, putting the country on track
for its first yearly decline in passenger-vehicle sales in nearly
three decades.
Exports, however, were an unexpected bright spot in the third
quarter. Chinese companies' overseas shipments rose an average of
11.7% from a year earlier, a slight improvement from an average of
11.5% monthly growth in the quarter before.
Much of that burst, however, came from manufacturers racing to
fill holiday orders and ship out goods before the trade conflict
gets worse. That, in effect, is borrowing from future growth.
In Shanghai, Taijing International Freight Co., a shipping firm,
has been busy dispatching cargoes of clothes, toys, home appliances
and other goods. "Some of them are definitely trying to complete
orders earlier than planned," said Pan Haitao, who runs the
company.
"The current pace of export expansion is unsustainable," says
China economist Larry Hu at Macquarie Capital Ltd., a Sydney-based
investment bank. Mr. Hu says export growth will decelerate to
between 5% and 10% in the coming months.
The Washington-Beijing trade fight has escalated beyond rhetoric
in recent months to imposing tariffs on a wide range of each
country's products, with trade penalties now on $250 billion of
Chinese goods and $110 billion of U.S. products. President Trump is
threatening to raise tariff rates in January to 25% from the
current 10, on most of those goods and place tariffs on an
additional $257 billion of Chinese products, essentially subjecting
all of the U.S.'s Chinese imports to such penalties.
Chao Deng and Liyan Qi contributed to this article.
Write to Lingling Wei at lingling.wei@wsj.com
(END) Dow Jones Newswires
October 18, 2018 23:21 ET (03:21 GMT)
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