The Trade War Is Not the Only Drag on China’s Slowing Economy

China’s economy is growing at its slowest pace since at least 1992, when modern record-keeping for quarterly growth began. Official figures from China’s National Bureau of Statistics showed the economy grew 6.2 percent between April and June, compared with a year earlier. Though it still looks like a brisk pace, it represents a slowdown for China, where the previous quarter’s growth rate was 6.4 percent.

A slump in trade was a main reason for the decline. Exports fell 1.3 percent as U.S. tariffs on $200 billion worth of Chinese goods rose from 10 percent to 25 percent in May. While the trade war has limited American purchases from China, economic weakness in Europe and many Asian countries is also weighing on demand for Chinese goods overseas.

U.S. President Donald Trump greeted the news Monday with delight. “The United States Tariffs are having a major effect,” he tweeted. “This is why China wants to make a deal with the U.S., and wishes it had not broken the original deal in the first place.” Chinese Foreign Ministry spokesman Geng Shuang pushed back Tuesday against Trump’s remarks, saying that both countries wanted to reach an agreement. Geng also said China’s first-half pace was “not a bad performance,” considering global economic uncertainty and slowing world growth. The most recent figures fell within the 6 to 6.5 percent target the government had set for this year, but economists tend to take China’s official economic figures with a grain of salt, “viewing them as likely too rosy,” as The Washington Post notes.

The trade war between the U.S. and China has raged for over a year now, and just last month, Trump and Chinese President Xi Jinping agreed to restart negotiations on a deal to end it. But in addition to trade concerns, China’s financial system is showing signs of weakness. In May, Chinese regulators took over Baoshang Bank in Inner Mongolia, citing “serious” credit risks.

The seizure led a wave of larger banks, suddenly wary of risk, to put money into more stable financial institutions run by the central government. This goes against the wishes of Chinese regulators, who have repeatedly urged big banks to lend more to small businesses and the private sector. Last month, China’s Central Bank was forced to step in and supply funds to smaller lenders.

Following the most recent release of economic data, analysts expect Beijing to continue rolling out economic stimulus measures. At a meeting with economists and business leaders Monday, Chinese Premier Li Keqiang reiterated the government’s commitment to cut taxes, improve monetary policy transmission and work to lower borrowing costs for smaller businesses and lift effective investment.

But whether that will be enough to mitigate the impact of a damaging trade war, in addition to domestic economic strains, remains to be seen. As Edward Moya, a market analyst at currency trading firm Oanda, wrote in a research note, “We are probably not near the bottom for China’s economy.”

Source: World Politics Review