China's trade war hits China's growth

The 27-year low: The Chinese economy slowed sharply in the third quarter as the trade war with Washington intensified, despite Beijing's efforts to stabilize the economy.

GDP growth fell to 6% year-on-year last quarter, the National Bureau of Statistics (SNB) said on Friday, a result consistent with analysts' predictions polled by AFP. This performance is at the bottom of Beijing's target of economic growth of 6.0% to 6.5% for the year as a whole.

In the second quarter, gross domestic product growth was 6.2%.

"You have to bear in mind that (…) the economy is under increasing pressure," SNB spokesman Mao Shengyong told reporters.

And Mr. Mao to mention "a difficult environment" both in China and abroad.

New surcharges

On 1 September, additional new surcharges came into effect in the United States on billions of dollars worth of Chinese goods imported annually. They were added to those already penalizing much of the trade between China and the United States, threatening global growth.

As a result, exports, one of the mainstays of the Chinese economy, are expected to remain weak in the coming months, warns Oxford Economics economist Tommy Wu.

Last week, Chinese and American negotiators, who were meeting in Washington for talks, agreed on an agreement in principle to try to end their commercial stand-off.

The details are not known, but Beijing is committed to buying more agricultural products from the United States.

This measure is long claimed by US President Donald Trump. As the next presidential campaign approaches, it could benefit some of its potential electorate, the farmers.

In exchange, China has escaped new customs surcharges that should have come into effect this week. But no decision has been taken on the 15% customs surcharges that will apply in December in the United States on Chinese consumer products.

The agreement in principle between the two powers is a "temporary truce but, failing a cancellation of the customs surcharges, the threat to growth remains," notes the economist Michael Taylor of the rating agency Moody's.

All is not dark

On Tuesday, the International Monetary Fund (IMF) warned that the trade war was a factor of "uncertainty that lasts". And the Washington-based institution has revised down its growth forecast for China for all of 2019 to 6.1% (compared to 6.2% according to previous forecasts).

This figure, however, would remain within the growth range targeted by Beijing this year (compared to 6.6% in 2018).

The picture is not entirely dark for the Chinese economy.

Industrial production and retail sales picked up again last month, according to the SNB.

Industrial production rose in September by 5.8% year on year (against 4.4% in August), while retail sales increased by 7.8% (against 7.5% the previous month).

"In the first three quarters, the economy has maintained overall stability," said Mao.

"Despite a more robust month of September, the pressure on activity should intensify in the coming months," said Julian Evans-Pritchard, an analyst at Capital Economics.

A sign that the economy is running out of steam, fixed capital investment continued to decline: its growth since the beginning of the year was 5.4% at the end of September, compared to 5.5% at the end of August.

In this context, the government called on Wednesday to redouble efforts to reduce the pressure on businesses.

For this year, the tax and social tax cuts for individuals and businesses have been estimated at more than 2,000 billion yuan (254 billion euros).

The expected drop in tax revenues means "less spending on infrastructure" and "a slowdown in real estate construction," warns Julian Evans-Pritchard.