China posts weakest growth in 29 years as trade war bites, but ends 2019
on better note
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[January 17, 2020]
By Stella Qiu and Kevin Yao
BEIJING (Reuters) - China's economic growth
cooled to its weakest in nearly 30 years in 2019 amid a bruising trade
war with the United States, and more stimulus is expected this year as
Beijing tries to boost sluggish investment and demand.
But data on Friday also showed the world's second-largest economy ended
the rough year on a somewhat firmer note as a trade truce revived
business confidence and earlier growth boosting measures finally
appeared to be taking hold.
As expected, China's growth slowed to 6.1% last year, from 6.6% in 2018,
data from the National Bureau of Statistics showed. Though still strong
by global standards, and within the government's target range, it was
the weakest expansion since 1990.
This year is crucial for the ruling Communist Party to fulfill its goal
of doubling gross domestic product (GDP) and incomes in the decade to
2020, and turning China into a "moderately prosperous" nation.
Analysts reckon that long-term target would need growth this year to
remain around 6%, though top officials have warned the economy may face
even greater pressure than in 2019.
More recent data, along with optimism over a Phase 1 U.S.-China trade
deal signed on Wednesday, have raised hopes that the economy may be
bottoming out.
Fourth-quarter GDP rose 6.0% from a year earlier, steadying from the
third quarter, though still the weakest in nearly three decades. And
December industrial output, investment and retail sales all rose more
than expected after an improved showing in November.
Policy sources have told Reuters that Beijing plans to set a lower
growth target of around 6% this year from last year's 6-6.5%, relying on
increased infrastructure spending to ward off a sharper slowdown. Key
targets are due to be announced in March.
On a quarterly basis, the economy grew 1.5% in October-December, also
the same pace as the previous three months.
"We expect China's growth rate will come further down to below 6%" in
the coming year, said Masaaki Kanno, chief economist at Sony Financial
Holdings in Tokyo.
"The Chinese economy is unlikely to fall abruptly because of ...
government policies, but at the same time the trend of a further
slowdown of the economy will remain unchanged."
SIGNS OF IMPROVEMENT, BUT WILL IT LAST?
December data released along with GDP showed a surprising acceleration
in industrial output and a more modest pick-up in investment growth,
while retail sales were solid.
Industrial output grew 6.9% from a year earlier, the strongest pace in
nine months, while retail sales rose 8.0%. Fixed-asset investment rose
5.4% for the full year, but growth had plumbed record lows in autumn.
Easing trade tensions have made manufacturers more optimistic about the
business outlook, analysts said, though many of the tit-for-tat tariffs
both sides imposed during the trade war remain in place.
"Despite the recent uptick in activity, we think it is premature to call
the bottom of the current economic cycle," Julian Evans-Pritchard and
Martin Rasmussen at Capital Economics said in a note.
"External headwinds should ease further in the coming quarters thanks to
the 'Phase One' trade deal and a recovery in global growth. But we think
this will be offset by a renewed slowdown in domestic demand, triggering
further monetary easing by the People's Bank."
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A girl runs past a man as he smokes in Beijing's central business
area, China January 17, 2020. REUTERS/Jason Lee
Among other key risks this year, infrastructure -- a key part of
Beijing's stabilization strategy -- has remained stubbornly weak.
Infrastructure investment grew just 3.8% in 2019, decelerating from
4% in January-November, despite sharply higher local government bond
issuance and other policy measures.
"This shows that local governments continued to face funding
constraints...," said Tommy Xie, China economist at OCBC Bank in
Singapore.
Some analysts are also worried about signs of cooling in the housing
market, a key economic driver.
Property investment growth hit a two-year low in December even as it
grew at a solid 9.9% pace in 2019. Property sales fell 0.1%, the
first annual decline in five years.
Beijing has worked for years to keep speculation and home price
rises in check, and officials vowed last year they would not use the
property market as a form of short-term stimulus.
MORE SUPPORT MEASURES
China will roll out more support measures this year as the economy
faces further pressure, Ning Jizhe, head of the Statistical bureau
told a news conference.
Ning noted that per capital GDP in China had surpassed $10,000 for
the first time last year. But analysts believe more painful reforms
are needed to generate additional growth.
Beijing has been relying on a mix of fiscal and monetary steps to
weather the current downturn, cutting taxes and allowing local
governments to sell huge amounts of bonds to fund infrastructure
projects.
Banks also have been encouraged to lend more, especially to small
firms, with new yuan loans hitting a record 16.81 trillion yuan
($2.44 trillion) in 2019.
The central bank has cut banks' reserve requirement ratios (RRR) -
the amount of cash that banks must hold as reserves - eight times
since early 2018, most recently this month. China has also seen
modest cuts in some lending rates.
Analysts polled by Reuters expect further cuts in both RRR and key
interest rates this year.
But Chinese leaders have repeatedly pledged they will not embark on
massive stimulus like that during the 2008-09 global crisis, which
quickly juiced growth rates but left a mountain of debt.
Containing financial system risks will remain a high priority for
policymakers this year. Corporate bond defaults hit a new record
last year, while state-linked firms had to step in to rescue several
troubled smaller banks.
Even with additional stimulus and assuming the trade truce holds,
economists polled by Reuters expect China's growth will cool this
year to 5.9%.
(Reporting by Kevin Yao; Editing by Kim Coghill)
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