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Amidst Weakened Domestic Demand, China Expected To Report Slow Economic Growth

The government may unveil more fiscal stimulus measures during the annual parliament meeting in March, including bigger tax cuts

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A woman looks at job advertisements on a wall in Qingdao West Coast New Zone in Shandong province, China, Jan. 17, 2019. VOA

China is expected to report Monday that economic growth cooled to its slowest in 28 years in 2018 amid weakening domestic demand and bruising U.S. tariffs, adding pressure on Beijing to roll out more support measures to avert a sharper slowdown.

Growing signs of weakness in China, which has generated nearly a third of global growth in the past decade, are stoking worries about risks to the world economy and are weighing on profits for firms ranging from Apple to big carmakers.

Chinese policymakers have pledged more support for the economy this year to reduce the risk of massive job losses, but they have ruled out a flood of stimulus like that which Beijing has unleashed in the past, which quickly juiced growth rates but left a mountain of debt.

China, Economic Growth
Workers unload containers from a train at Dahongmen Railway Station, Beijing, Jan. 14, 2019. VOA

Estimated 2018 GDP: 6.6 percent

Analysts polled by Reuters expect the world’s second-largest economy to have grown 6.4 percent in the October-December quarter from a year earlier, slowing from the previous quarter’s 6.5 percent pace and matching levels last seen in early 2009 during the global financial crisis.

That could pull 2018 gross domestic product (GDP) growth to 6.6 percent, the lowest since 1990 and down from a revised 6.8 percent in 2017.

With stimulus measures expected to take some time to kick in, most analysts believe conditions in China are likely to get worse before they get better, and see a further slowdown to 6.3 percent this year. Some analysts believe real growth levels are much weaker than official data suggest.

Even if China and the United States agree on a trade deal in current talks, which is a tall order, analysts said it would be no panacea for the sputtering Chinese economy unless Beijing can galvanize weak investment and consumer demand.

China, Economic Growth
A worker disentangles wool yarn at a spinning machine at a factory owned by Hong Kong’s Novetex Textiles Limited in Zhuhai City, Guangdong province, China, Dec. 13, 2016. VOA

Prevent deflation, recession

Chen Xingdong, chief China economist at BNP Paribas, said investors should not expect the latest round of stimulus to produce similar results as during the 2008-09 global crisis, when Beijing’s huge spending package quickly boosted growth.

“What China can really do this year is to prevent deflation, prevent a recession and a hard landing in the economy,” Chen said.

On a quarterly basis, growth likely eased to 1.5 percent in October-December from 1.6 percent in the preceding period.

China will release its fourth-quarter and 2018 GDP data Monday (0200 GMT), along with December factory output, retail sales and fixed-asset investment.

Since China’s quarterly GDP readings tend to be unusually steady, most investors prefer to focus on recent trends.

China, Economic Growth
People try garments at a retail and wholesale clothing mall in Beijing, July 16, 2018. China’s economic growth slowed in the quarter ending in June, adding to challenges for Beijing amid a mounting tariff battle with Washington. VOA

Hints economy cooling quickly

Surprising contractions in December trade data and factory activity gauges in recent weeks have suggested the economy cooled more quickly than expected at the end of 2018, leaving it on shakier footing at the start of the new year.

Sources have told Reuters that Beijing was planning to lower its growth target to 6-6.5 percent this year from around 6.5 percent in 2018.

Tepid expansion in industrial output and weaker consumer spending is squeezing companies’ profit margins, discouraging fresh investment and raising the risk of higher job losses.

Some factories in Guangdong, China’s export hub, have shut earlier than usual ahead of the long Lunar New Year holiday as the tariff war with the United States curtails orders. Others are suspending production lines and cutting back on workers’ hours.

If the trade war drags on, some migrant workers may not have jobs to return to.

Trade talk deadline

Trade negotiators are facing an early March deadline and Washington has threatened to sharply hike tariffs if there are no substantial signs of progress.

China, Economic Growth
A woman cleans the window at a Aston Martin luxury car dealership in Beijing, Dec. 12, 2018. Auto sales have fallen sharply in China. VOA

So far, Chinese policymakers have fast-tracked construction projects and cut taxes and some import duties to spur demand.

To free up more funds for lending, particularly to more vulnerable smaller firms, the central bank has cut the amount banks need to set aside as reserves (RRR) five times over the past year, and guided borrowing costs lower.

Further RRR reductions are expected in coming quarters, but most analysts do not see a cut in benchmark interest rates just yet, as policymakers wait to see if earlier steps begin to stabilize conditions. More forceful easing could pressure the yuan and aggravate high debt levels, with money going into less efficient or speculative investments.

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The government may unveil more fiscal stimulus measures during the annual parliament meeting in March, including bigger tax cuts and more spending on infrastructure projects, analysts say.

Some China watchers believe the government could deliver 2 trillion yuan ($295.13 billion) worth of cuts in taxes and fees this year, and allow local governments to issue another 2 trillion yuan in special bonds largely used to fund key projects.

Still, some analysts do not expect the economy to bottom out convincingly until summer. (VOA)

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U.S. Tariffs on China Could Remain Same, Even After Reaching The Trade Deal

Tariffs on imported automobiles — as are being contemplated by the White House — "would be counterproductive, like we have seen with steel tariffs," said Srinivasan, who was part of former President Barack Obama's Advanced Manufacturing Partnership task force.

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Shipping containers, including one labeled "China Shipping," are stacked at the Paul W. Conley Container Terminal in Boston, Mass., May 9, 2018. VOA

U.S. tariffs on China are likely to remain in place for a while, even if a trade deal is reached, President Donald Trump told reporters Wednesday.

“The deal is coming along nicely,” the president said about the trade talks with Beijing, noting U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin would be heading to China within days to continue discussions.

“We’re taking in billions and billions of dollars right now in tariff money, and for a period of time that will stay,” Trump said.

The president’s remarks indicated that Washington’s tariffs could stay in place until U.S. officials are convinced the Chinese are adhering to the terms of the agreement.

“They’ve had a lot of problems living by certain deals,” the president noted on the White House South Lawn just before boarding the Marine One helicopter.

President Donald Trump talks to reporters as he departs on travel to Ohio from the White House in Washington, March 20, 2019.
President Donald Trump talks to reporters as he departs on travel to Ohio from the White House in Washington, March 20, 2019. VOA

China might accept a deal in which most of the U.S. tariffs are rolled back, according to Brookings Institution senior fellow David Dollar, but he said he expected President Xi Jinping would not accept any pact in which no tariffs were lifted.

“It’s very hard for the Chinese president to agree to a deal that’s so clearly asymmetric. Chinese people are so active on the internet and social media, and President Xi will hear about it from the people if he makes a deal that looks bad for China,” Dollar told VOA.

Tit-for-tat tariffs imposed last year ignited fears of a trade war between the United States and China, the world’s two largest economies, which annually trade more than a half-trillion dollars’ worth of goods.

The value of Chinese products sold in the United States far outweighs the value of those sent to China, and that deficit alone represents about 80 percent of America’s overall trade gap in goods.

A pillar of the Trump presidency has been reducing that huge gap by negotiating bilateral trade deals and rebuilding the U.S. manufacturing base.

President Donald Trump shakes hands with supporters as he arrives at Allen County Airport, March 20, 2019, in Lima, Ohio.
President Donald Trump shakes hands with supporters as he arrives at Allen County Airport, March 20, 2019, in Lima, Ohio. VOA

Trump traveled Wednesday to an area in Ohio where General Motors is set to shutter a car assembly plant, affecting about 1,500 jobs and undercutting the president’s manufacturing revival message.

“What’s going on with General Motors?” Trump asked during a speech. “Get that plant open or sell it to somebody and they’ll open it. Everybody wants it.”

“Intervening to try to keep one factory open isn’t going to do much for the economy” at a time when manufacturing is declining as a share of the overall job market, said Dollar, of the Brookings Institution. “It’s a bad precedent for politicians to intervene like that.”

A resident scholar at the American Enterprise Institute, Claude Barfield, agrees presidents should not intervene in individual corporate decisions.

“The president is woefully ignorant about trade and this part of the economy. He thinks it does help. I don’t think it does at all help,” Barfield, a former consultant to the office of the U.S. trade representative, told VOA.

The closure of the GM plant in Lordstown, according to a Cleveland State University study, will result in a total loss of 7,700 jobs in the region, including supply chain and consumer services employment tied to the auto plant, cutting 10 percent of the gross regional product in the greater Youngstown area.

Trump, in his remarks on Wednesday, placed some of the blame on the United Auto Workers, the union representing the GM workers.

“Your union leaders aren’t on our side,” Trump declared. “They could have kept General Motors” operating the Lordstown plant.

FILE - Employees watch as the last Chevrolet Cruze rolls off the assembly line at the General Motors Co. assembly plant in Lordstown, Ohio, March 6, 2019, in this photo obtained from social media.
Employees watch as the last Chevrolet Cruze rolls off the assembly line at the General Motors Co. assembly plant in Lordstown, Ohio, March 6, 2019, in this photo obtained from social media. VOA

Trump spoke at a facility in Lima that makes the M1 Abrams tank for the U.S. Army, about 300 kilometers from the idled auto factory.

“You better love me. I kept this place open,” Trump told workers at the General Dynamics facility, which was nearly closed six years ago after Army officials told Congress they did not need the additional tanks.

Workers listen as President Donald Trump delivers remarks at the Lima Army Tank Plant, March 20, 2019, in Lima, Ohio.
Workers listen as President Donald Trump delivers remarks at the Lima Army Tank Plant, March 20, 2019, in Lima, Ohio. VOA

Ohio, which Trump won in the 2016 election by 8 percentage points, again will be a key battleground state in next year’s presidential election.

Polls in the Buckeye State, where the president relies on a strong base of working-class voters, show his approval rating slipping.

Trade and tariffs are “not even the core issue about retaining the manufacturing jobs in this region,” University of Akron associate professor Mahesh Srinivasan, who is director of the school’s Institute of Global Business, told VOA.

Srinivasan said the focus by the Trump administration should not be so much on trade agreements as on “the inevitable march of automation and technology that has displaced workers from traditional jobs. The need of the hour is doubling down with even more emphasis on worker training and education to prepare the workforce for tomorrow’s jobs.”

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Tariffs on imported automobiles — as are being contemplated by the White House — “would be counterproductive, like we have seen with steel tariffs,” said Srinivasan, who was part of former President Barack Obama’s Advanced Manufacturing Partnership task force. “It could attract retaliatory tariffs that will negatively impact numerous automobile manufacturers in Ohio and other Midwestern states, which today are supplying to automobile manufacturers globally.”

Some trade analysts agree that Trump’s metals tariffs on Canada and Mexico have hurt American manufacturing, including making U.S. auto plants less competitive. (VOA)