China’s 2018 growth slows to 28-year low

Why in news?

• China’s economy cooled in the fourth quarter under pressure from faltering domestic demand and bruising U.S. tariffs, dragging 2018 growth to the lowest level in nearly three decades and pressuring Beijing to roll out more stimulus to avert a sharper slowdown.
• Growing signs of weakness in China — which has generated nearly a third of global growth in recent years — are fueling anxiety about risks to the world economy and are weighing on profits for firms ranging from Apple to big carmakers.
• Policymakers have pledged more support this year to reduce the risk of massive job losses, but have ruled out a “flood” of stimulus like that which Beijing has relied on in the past, which quickly juiced growth rates but left a mountain of debt.
• The government has means to support the economy. They can expand infrastructure spending and they can cut banks’ reserve requirement ratio to tackle the problem.
• But the problem lies in consumption. As the U.S. and China clash on many fronts, consumer sentiment appears to have been hurt. Until now, solid wage growth has been supporting consumption but now there appears to be a sense of vague anxiety about the future.
• Fourth-quarter gross domestic product (GDP) grew at the slowest pace since the global financial crisis, easing to 6.4 percent year-on-year, as expected, from 6.5 percent in the third quarter, the National Bureau of Statistics said.
• That pulled full-year growth down to 6.6 percent, the slowest annual pace since 1990. GDP in 2017 grew a revised 6.8 percent.
• S. President Donald Trump said on Monday that economic indicators meant it was time for China to make a trade deal with the United States.

UNCERTAINTIES

• Despite a raft of policy easing steps so far, December data released along with GDP showed continued weakness across broad areas of the economy at the end of last year.
• Factory output picked up unexpectedly to 5.7 percent from 5.4 percent, but it was one of the few bright spots, along with a stronger services sector.
• Despite the slowing economy, Chinese officials also pledged to continue with a crackdown on air pollution that has weighed on the industrial sector.
• Though retail sales growth picked up marginally in December to 8.2 percent, the consumer strength gauge is around the weakest in 15 years. Auto sales in the world’s biggest car market shrank for the first time since the 1990s.

TRADE PRESSURES

• Even if China and the United States agree on a trade deal in current talks, which would be a tall order, analysts said it would be no panacea for China or its exporters.
• White House officials have given markedly different views on progress so far. China’s vice premier and lead negotiator, Liu He, is due to visit Washington for the next round of talks at the end of the month.

MORE STIMULUS

• To free up more funds for lending, particularly to vulnerable smaller firms, the central bank has cut the amount of reserves that banks need to set aside as reserves (RRR) five times over the past year, and guided borrowing costs lower.
• Further RRR reductions are expected in coming quarters, but most analysts do not see a cut in benchmark interest rates yet, as policymakers wait to see if earlier steps begin to stabilize activity.
• More forceful easing could also pressure the yuan and aggravate high debt levels, with money going into less efficient or speculative investments as it often has in the past.
• The government may unveil more fiscal stimulus during the annual parliament meeting in March, including bigger tax cuts and more spending on infrastructure projects.

(International)(Reuters)

Pic courtesy:The Hindu Business Line