On July 15, 2019, China’s National Bureau of Statistics (NBS) released GDP growth data of 6.2% year on year for the second quarter of 2019, down from 6.4% for the first quarter. China has not posted growth data that low since the NBS started such calculations in 1992. The evidence of a slowdown in China aligns with many analysts’ expectations. The current slowdown occurs amid a continued worldwide slowdown and a trade dispute with the United States. Some estimates point to the final quarter of 2018 as the beginning of the current slowdown in the pace of global growth, with a particularly notable slowdown in Europe. China’s growth data for quarter one of 2018 stood at 6.8%, while growth decreased steadily to 6.4% by quarter four of 2018 and quarter one of 2019. The current economic situation in China has led to a plethora of expansionary policy responses by Beijing. Changes in China’s overall growth moving forward will undoubtedly affect many other actors in the world economy.
The most recent NBS report for the second quarter of 2019 shows areas of both strength and weakness in China’s economy. Industrial output rose by 5% in May and 6.3% in June, while retail sales also accelerated from an 8.6% increase in May to a 9.8% increase in June. Auto sales, a major contributor to retail sales, grew 4.9% in June year on year. Auto sales had decreased for roughly a year in the midst of a tightening domestic regulatory environment. This auto sale growth will prove temporary, as current levels reflect the use of discounted prices to decrease inventories prior to anticipated regulatory changes. Towards the end of the second quarter, exports decreased by 1.3% and imports decreased by 7.3% in June year on year. This gives evidence of China’s shift away from export-led growth and towards a reliance on the domestic market. The trade war may hasten this trend but is not the origin of it.
In 2019, China has implemented a variety of stimulus measures to maintain GDP growth. This year, China has already implemented a substantial fiscal stimulus of $291 billion in tax cuts. At the same time, China has also used $316.74 billion in local government bond issuance to fund local infrastructure development and stimulate growth. To date, China has already issued roughly 70% of the allotted annual quota for such bonds. Lastly, China has cut banks’ reserve requirement ratios six times since the beginning of 2018, and many analysts anticipate further cuts in the second of half of 2019. Thus, the government has already implemented a plethora of stimulus measures over the past year and still has some room to maneuver and implement more similar measures.
The slowdown could pose risks for other countries that have close ties with China. Two of China’s major trading partners, Korea and Japan, began a trade dispute on July 1, 2019. Japan has limited exports to Korea of three chemicals that are essential elements of semiconductors and flat screens, key components of Korea’s tech industry. In the past few months, Korean chipmakers have already faced lower demand from the Chinese market related to the U.S.-China trade dispute. Thus, a general slowdown in the neighboring market of China will only add to the difficulties faced by producers in these two countries.
Decreased trade tensions and an increase in global growth in the next six months would prove a boon for China’s economy. If such favorable circumstances do not arise, China still possesses room to maneuver and can continue some expansionary measures to mitigate or reverse the slowdown.