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China’s Economy Grows by 6.7 Percent in the Second Quarter

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By: Miles Pearson – Forex Focus

Annualised GDP in line with market consensus, lowest since third-quarter 2016

China’s economy expanded at an annualised rate of 6.7 percent in the second quarter of this year, in line with broad market consensus. Compared to the first three months of the year, GDP (gross domestic product) growth in the world’s second largest economy eased from an annualised rate of 6.8 percent, registering the weakest pace of expansion since the third quarter of 2016. However, for the quarter ending in June, the Chinese economy advanced by 1.8 percent, beating market expectations of 1.6-percent growth and higher than the 1.4-percent expansion set in the first three months of the year. This occurred even as the country continues to clamp down on risky debt, driving up corporate borrowing costs and leading to a fall in investments, and at a time when the property market is slowing down in some Tier 1 cities. In addition, the intensifying tariff battle with the United States could lead to a sharp fall in the bilateral trade surplus that the country currently enjoys, slowing down domestic consumption and compelling China’s central bank to continue easing monetary policy, which has largely remained unchanged since October 2015. However, the People’s Bank of China has cut the reserve requirements of commercial banks three times this year, replacing the term deleveragingwith structural deleveraging, a softening of stance from the harsh curbs on credit, as policymakers ready themselves to support the domestic economy from a potential fallout of the tariff war.

A quick look at some of the recently published key economic indicators in China 

Industrial production in the country eased to 6 percent year-on-year in June from 6.8 percent the month earlier, missing street expectations of a 6.5-percent rise. The decline was led by slow output growth across most sectors, including manufacturing, utilities, mining, machinery, transport equipment and communication. For the first six months of the current year, industrial production advanced by 6.7 percent.

China’s trade surplus narrowed slightly to $41.61 billion in June from $42.49 billion during the same period last year, with the Asian country’s trade surplus to the US widening close to $29 billion, as exporters rushed in shipments before the US trade tariffs kicked in. The international trade numbers in June were way above market expectations of a $27.9-billion increase, with imports advancing 14.1 percent compared to a 26-percent rise in May and exports shrinking slightly from 12.6 percent in May to 11.3 percent in June.

Annualized retail sales in China rose to 9 percent in June from 8.5 percent the previous month as sales in rural areas increased to 10.5 percent, outperforming the 9.2-percent growth in retail trade in urban regions. The broad growth was led by telecom, garments, jewellery, cosmetics, home appliances and furniture, while sales of automobiles slumped to -7 percent from -1 percent and sales related to office supplies increased at a slower pace.

The country’s fixed-asset investment advanced by 6 percent in the first half of this year, expanding at the slowest pace since the beginning of the series in 2004. The year-on-year figures were slightly lower than the 6.1 percent announced in the January-to-May period, as public investment slowed to 3 percent from 4.1 percent in the January-to-May period, offsetting the 8.4-percent rise (8.1 percent from January to May) in private investments.

Economic growth projections 

According to government sources, the Chinese economy is projected to expand by 6.5 percent in 2018, falling below the 26-year low of 6.7 percent reported in 2016 and the 6.9-percent growth of last year. In value terms, China’s GDP is estimated to be around $12.2 trillion in 2017, which accounts for close to 20 percent of the world economy. In percentage terms, the country’s economy expanded by close to 10 percent last year, after stagnating between 1 and 5 percent in the previous two years.

However, the impact of the current tariff standoff with the US will be factored in only in the second half of the year; and if the trade war escalates to the $450 odd billion in annual exports that China delivers to the US, not only will it negatively affect the world’s largest two economies but could lead to a sharp global economic slowdown.

 

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