China’s economy shows more signs of running out of gas
Beijing pins its hopes on trade war solution amid optimistic signs from the US as economic slowdown continues
Slowdown? China’s economy has probably stalled after data released earlier this week showed that auto sales went into reverse for the first time in nearly 20 years.
The findings came off the back of falling consumer confidence and illustrate the depth and scale of the problems facing President Xi Jinping’s administration.
In a snapshot of the state of the country’s economy, the China Passenger Car Association reported that car sales fell 5.8% last year to 22.35 million vehicles. This was the first annual decline since 1990.
Globally, this resembles a motorway pile-up for major international car brands as China is the largest auto market in the world.
“The situation turned out grimmer than we thought,” Cui Dongshu, the secretary-general of the Association, said. “[But] it will be positive, at least 1% up in 2019. And [the government] has said it is considering offering some stimulus to encourage car purchases, which will be a further boost.”
Overall, this has been a depressing fourth quarter.
Manufacturing activity has declined and consumer spending has shrunk, while smartphone shipments have posted all the wrong numbers, plunging 15.5% in 2018.
Already concerns are growing that China will struggle to meet its official growth target of 6.5%. There have even been suggestions that the figure has been grossly exaggerated.
“How bad are things? The number that China’s National Bureau of Statistics (NBS) gives is 6.5%, but a research group of an important institution released an internal report. Can you take a guess on the GDP growth rate that they came up with using the NBS data?” Xiang Songzuo, a professor at Renmin University’s School of Finance, told a seminar last month.
“They used two measurements. Going by the first estimate, China’s GDP growth this year was about 1.67%. And according to the other calculation, the growth rate was negative,” Xiang, the former chief economist of the Agricultural Bank of China, one of the big four state lenders, added in a translated version of his speech on the influential China Change website.
Indeed, this has become a recurring theme in the past six weeks.
Alex Capri, a visiting senior fellow at the National University of Singapore’s Business School, highlighted the issue earlier this month.
“I do believe the numbers are worse than reported, of course, in that type of political environment where there’s strong censorship, where media is essentially prevented from reporting,” he said.
While that debate continues to rumble on, Beijing has decided to roll out a raft of measures to shore up the world’s second-largest economy.
These will include stimulating consumer spending and boosting borrowing for small- and medium-sized companies, as well as another round of tax cuts. Increased infrastructure investment is also planned.
Still, a key component in turning around sluggish growth will involve resetting China’s strained “relationship” with the United States after a bitter and costly trade war.
Mid-level talks ended in Beijing on Wednesday after a 90-day ceasefire was put in place by US President Donald Trump and Xi at the Group of 20 summit in Buenos Aires in December.
Initial reactions were positive.
“The meetings were held with a view to achieving needed structural changes in China with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft of trade secrets for commercial purposes, services and agriculture,” a statement released by the Office of the United States Trade Representative said.
“Talks also focused on China’s pledge to purchase a substantial amount of agricultural, energy, manufactured goods and other products and services from the United States,” it added.
The mood music coming out of Beijing was just as soothing.
In a short statement, the Ministry of Commerce said:
“Both sides enthusiastically implemented the important agreement of the heads of both countries, and held broad, deep and meticulous discussions on shared observations on trade issues and structural problems, laying the foundation for addressing areas of common concern. Both sides agreed to continue to keep in close contact.”
The next step could be a possible meeting between Xi’s trusted ally Wang Qishan and Trump at the World Economic Forum in Davos later this month.
Vice-President Wang has a reputation for getting the job done in Communist Party circles and is known as the “firefighter” for tackling challenging assignments. He will need to live up to that image in the swanky Swiss ski resort.
“As Chinese-US relations stand at a new starting line, [we] must stay committed to our original aspiration and focus on coordination, cooperation and stability,” he said at a reception in Beijing on Thursday.
“We must adapt to the new reality, keep looking for and expanding our common interests, deepening and promoting practical cooperation,” Wang added at a reception to commemorate the 40th anniversary of the establishment of diplomatic ties between China and the US. “[But] regardless of how the international landscape changes, China will unswervingly follow its own path.”
Finding the right balance might still prove difficult.
So far, Beijing has agreed to buy more goods and products in a move to cut the whopping US trade deficit, which was a record US$375.2 billion in 2017.
But other crucial sticking points remain such as the high-tech “Made in China 2025” plan and China’s state-backed economic model.
“Even if the trade tensions could be eased, the disputes between China and the US are not just limited to trade issues,” Shen Jianguang, the chief economist with Jingdong Finance, wrote in a commentary for Global Times, which is run by the Communist Party’s official newspaper, the People’s Daily.
“Increasing disagreements in terms of cybersecurity, geopolitics and technological competition indicate the rivalry has spread to science and technology, and through to the economic systems,” he continued.
“China will likely face more conflicts with the US at different levels, and it is essential to be prepared for a protracted war. Nevertheless, there is no need to be overly pessimistic about the external pressures. The best response to these challenges is to focus on ourselves and do our own things well,” Shen added.
Starting with the economic slowdown, perhaps?