n July 15, China’s National Bureau of Statistics (NBS) released its headline economic figures for the first half of the year. China’s GDP growth rate slowed from 6.4 percent in the first quarter to 6.2 percent in the second quarter. Amid the ongoing trade war with the US, the figure, the lowest since 1992, caused much pessimism over China’s economic prospects among many media outlets.
US President Donald Trump went even further to claim credit for the drop, saying that his tough actions had forced China to the negotiating table. “China’s 2nd Quarter growth is the slowest it has been in more than 27 years. The US Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries. Thousands of companies are leaving. This is why China wants to make a deal,” Trump tweeted.
There is no doubt that Trump’s decision to raise tariffs on US$250 billion worth of Chinese goods has had a major impact on the Chinese economy. Even Mao Shengyong, spokesperson for the NBS admitted that China’s economy is “under new downward pressure.” But a closer look at the latest economic figures shows that the Chinese economy is more resilient than many expected.
First, the latest data shows China’s domestic consumption remains strong, as retail sales increased by 9.8 percent year-on-year in June, up from 8.6 percent in May. Among domestic consumption, the service sector accounted for 49.4 percent in the first half of the year, 0.6 percent more than in 2018, and the size of internet commerce increased by 17.8 percent, showing no sign of slowing down. In the meantime, per capita disposable income increased by 6.5 percent, 0.3 percentage points more than GDP growth, suggesting that growth in domestic consumption remains sustainable.
Second, the manufacturing sector remains competitive. According to the data, industrial output rose 6.3 percent in June. Output in the high-tech sector, a major target of Trump’s tariffs, increased by 9 percent in the first half of the year. Output in key high-tech industries also increased, with new-energy cars and solar power batteries growing by an impressive 34.6 percent and 20.1 percent.
Third, the data shows that the unemployment situation appears to be manageable. Despite a reported exodus of foreign companies, the unemployment rate in urban regions increased only by 0.1 percent to 5.1 percent. The NBS said 7.37 million new jobs were created in the first half, accounting for 67 percent of the annual target set by the government.
Finally, with the impact of the trade war, China’s exports to and imports from the US experienced a steep decline, dropping by 29.9 percent and 8.1 percent respectively. But at the same time, trade volume with other partners is still on the rise. In the first half year, bilateral trade with the European Union and ASEAN countries increased by 11.2 percent and 10.5 percent, with the US sliding to third place after the EU and the ASEAN bloc.
Yet these figures do not mean that the Chinese economy will escape the current downward trend anytime soon, especially considering that the purchasing managers’ index (PMI), an indicator of economic health, dropped to 49.4 in June from 50.2 in May. But it is equally misleading to suggest that the Chinese economy is crumbling.
Despite the lowest growth rate for nearly three decades, the Chinese economy remains a top performer among the world’s largest economies. The figure also falls within the targeted 6.0 to 6.5 range set by the government for 2019. One needs to note that the slowdown of the Chinese economy started long before the trade war with the US.
To a large extent, the steady decline in GDP growth is caused more by the ongoing reform and China’s efforts to restructure its economy rather than the trade war. The trade war definitely poses an additional challenge to China’s economy, but it may also help to inject some urgency which could help overcome existing resistance to the ongoing reforms. Given its resilience, the future for the Chinese economy is far from bleak.