Weak spots emerge in China’s economy as trade war intensifies

New figures show parts of China’s economy slowing as Beijing tries to reach an agreement with the US over trade.

Customers choose products at a supermarket in Suzhou
China's retail sales grew at their slowest pace in 16 years in April [File: Reuters]

Key parts of China‘s economy slowed down in April, underscoring the challenges faced by the government as it tangles with the United States in a trade war.

Retail sales grew at their slowest pace in 16 years. Industrial output and investments were also weak.

Despite the sobering data dump, the government described the economy’s performance as “reasonable.”

“Boosting domestic consumption is crucial for China to withstand the impact of slower exports when trade tariffs hurt,” said CMC Markets analyst Margaret Yang in a research note.

Retail sales grew by 7.2 percent year-on-year in April, significantly lower than the 8.7 percent growth recorded in March. Industrial production expanded by 5.4 percent, far lower than the 8.5 percent growth recorded in March, which was a four-and-a-half-year high.

Trade tensions

Tensions between the US and China intensified this week after China announced on Monday that it would raise tariffs on $60bn worth of US goods from June 1 onward. The move was in response to Washington’s decision last week to hike tariffs on $200bn worth of goods from China, and possibly another $300bn in the coming weeks.

US President Donald Trump has said he will meet his Chinese counterpart Xi Jinping at the G20 summit in Japan next month to try and hammer out a trade deal. On Tuesday, Trump toned down his hawkish trade rhetoric, insisting that talks with Beijing have not collapsed and framing the escalating trade war as “a little squabble”.

The US and China are locked in a trade war. [FILE: Jason Lee/Reuters]
The US and China are locked in a trade war. [FILE: Jason Lee/Reuters]

The talks stalled last week, reportedly after China tried to delete commitments from a draft agreement stating that its laws would be changed to enact new policies on issues from intellectual property protection to forced technology transfers. In response, China has blamed the US for going back on its word during previous rounds of talks.

Some analysts said the April slowdown in key indicators for China’s economy was to be expected following rapid growth rates in March.

“The retail data somewhat overstate the slowdown in the retail sector, with the comparison base having been skewed by additional working days in April,” Yue Su, a China economist at The Economist Intelligence Unit (EIU), told Al Jazeera. “In line with the EIU forecast, the unusual lift in March was mainly tied to seasonal factors.”

“The EIU does not see the April statistics as raising significant concerns about the GDP outlook,” Su said, referring to gross domestic product, the most common indicator of the strength of an economy.

More stimulus?

Some analysts say the government may have to roll out more economic stimulus measures. It has already started making it easier for companies to borrow money to build infrastructure projects.

But the latest figures show that investment in things like buildings, equipment and land – so-called fixed assets – rose by 6.2 percent between January and April compared with the same period last year. This growth was below analysts’ forecasts.

“The main concern for the government is the slowing down in fixed-asset investment, despite the efforts to raise the supply of credit. Therefore, the failure of policy loosening to stimulate investment – alongside renewed US-China trade tensions – may point to a lengthier period of easing,” said Su.

In March, the Chinese government lowered its economic-growth forecast to between six and 6.5 percent for 2019, down from a previous estimate of around 6.5 percent.

Source: Al Jazeera