China has reported its slowest growth rate in nearly three decades as the intensity of its ongoing trade stand-off with the United States shows no signs of weakening in the immediate future.
The world’s second-largest economy grew by 6.6% in 2018, the slowest rate since 1990, which was only a year after the ruling Communist Party gunned down hundreds of protesters in Beijing’s Tiananmen Square and at the early stage of China’s privatisation drive.
The trade dispute with the US is a problem that could get worse by March 4, when the Americans are due to increase tariffs on Chinese exports from 10% to 25%, a move worth $250 billion.
Domestic demand and investment has filled the gap, thus far, but China is suffering from a major manufacturing overcapacity. Furthermore, China is now nearing a 300% debt-to-GDP ratio, which is comparable only to Japan.
The Chinese Communist Party hopes their “China 2025” agenda, which focuses on high-value manufacturing and the improvement of the country’s production capacity, will continue to spur growth along with a series of stimulus measures that include major tax breaks.
Retail sales and industrial output ticked up in December, suggesting greater business and consumer confidence in China. The overall 2018 picture was bleak, however. For the first time in decades, China’s car dealerships and smartphone sales experienced a major drop-off in demand.
By December 2018, car sales in China slumped by 20%, year on year. This has triggered layoffs in production plants across China, affecting a whole industrial and service cluster. The suspicion is that lower consumption reflects an economy that performs worse than the official figures handed out by the Chinese government suggest.
China has generated nearly a third of global growth in recent years and the news of the Chinese slowdown affected both commodity producing countries – from Brazil to Australia – as well as the stock value of major consumer goods manufacturers ranging from iPhones to German cars.
The pan-European Euro Stoxx 600 Index hovered near the flatline early on January 22, with all major bourses falling in the first hour of trade, with banks and miners leading the downward trend.