BEIJING: China’s economic expansion languished to its slowest pace in nearly three decades last year, as a bruising trade fight with the U.S. exacerbated weakness in the world’s second-largest economy.
The 6.6% growth rate for 2018 reported Monday is the slowest annual pace China has recorded since 1990. The economic downturn, which has been sharper than Beijing expected, deepened in the last months of 2018, with fourth quarter growth rising 6.4% from a year earlier.
Adding to the gloom was the trade conflict with Washington. The uncertain outlook for Chinese exporters caused companies to delay investing and hiring and in some cases even to resort to layoffs—a practice often discouraged by China’s stability-obsessed Communist Party rulers. The official jobless rate ticked up to 4.9% last month from 4.8% in November.
In the southern technology and export-manufacturing center of Shenzhen, for instance, many private makers of electronics, textiles and auto parts furloughed workers more than two months before the Lunar New Year holiday, which begins in February, according to business owners and local officials. The neighboring city of Guangzhou saw growth slump to 6.5% last year—well short of the 7.5% annual target set by the city government—as trade tensions hit the city’s manufacturing sector hard.
Some economists and investors have said China’s economy is far more anemic than the government’s 6.6% rate of expansion for 2018. They note the government’s move on Friday, just ahead of Monday’s data release, to cut the 2017 growth rate to 6.8% from 6.9%, which they said provides a slightly lower base, giving a slight boost to the fresh 2018 data.
“The economy faces downward pressure,” said Ning Jizhe, head of the National Bureau of Statistics, at a news conference Monday. In particular, Mr. Ning pointed to “complicated and severe external environment” and acknowledged the pressure from the Beijing-Washington trade conflict. He sought to dampen those concerns, saying “the economy overall is driven by domestic demand.”
Monday’s data show consumption, including purchases by individuals, households and government, made up more than three-quarters of last year’s growth.
Still, a raft of data released by Mr. Ning’s office portrays an economy that is challenged. Big-ticket investments by both government and businesses are lackluster. Property sales, a long reliable source of growth, are weakening. And indicators from industrial output to retail sales slowed in recent quarters.
Softening wage growth and rising household debts are causing Chinese consumers to tighten their purse strings. Lu Bing, a manager at a tailor-made clothing shop in Yancheng, an industrial city in eastern China, said its sales dropped as much as 30% last year. “It was a terrible year, and it doesn’t look like things are getting any better this year,” said Mr. Lu. He said he reduced his personal spending and borrowed more to make ends meet.
China’s economy has been decelerating partly due to President Xi Jinping’s initiative of the past three years to contain debt and fend off financial risks. That campaign has curbed borrowing by local governments and businesses and caused a sharp fall in spending on new subway lines and factories. Beijing started reversing course on the debt-control effort in recent months, though the easing measures taken so far have failed to rejuvenate fixed-asset investment, which grew 5.9% last year, a sharp drop from 7.2% in 2017.
The U.S.-China trade conflict, coupled with declining global demand, also helped damp China’s growth by reducing its sales overseas. That overall weakening trade shaved 8.6% from China’s overall economic activity, according to calculations by The Wall Street Journal, which are based on official data. By comparison, trade contributed about 9% to the country’s overall economy in 2017.
China’s leaders have made it clear that arresting the slowdown is a priority for this year. At a December high-level meeting that mapped out the broad economic agenda for 2019, President Xi said growth must be maintained within “a reasonable range.” Advisers to China’s policy makers say that range, to be announced during the nation’s annual legislative session in early March, is between 6% and 6.5%.
That would mark a modest recalibration from last year’s objective of “about 6.5%,” suggesting Beijing wants more wiggle room to manage the economy, which is in a yearslong slowdown as the old debt-fueled growth model reaches its limits. Of the 20 provinces and municipalities that have disclosed their 2019 growth targets so far, 13 slashed their objectives and six left their goals unchanged.
The expected growth range for this year, still relatively high by global standards, is a long way from a pace of expansion that averaged nearly 10% annually for more than three decades until slowing in the past decade. The 6.4% growth rate in 2018’s final quarter is the slowest since the early months of the global financial crisis, which Beijing then countered with massive amounts of stimulus, leaving a legacy of debt the government is still grappling with.
For now, Beijing appears to be determined not to deploy a big pro-growth package and is instead taking a path of gradual policy-easing. The central bank has been injecting more, and cheaper, funds into the banking system to encourage lending; the central government has removed tightfisted controls on local borrowing; Beijing is planning more tax cuts for both businesses and individuals, particularly those involved in the technology sector.
Government advisers, however, said Beijing may have to step up stimulus measures should trade tensions with Washington worsen in the coming months. China and the U.S. are preparing for a new round of high-level trade negotiations at the end of this month, trying to reach a resolution by March 1, when a three-month cease-fire Mr. Xi and President Trump reached expires. - WSJ
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