Chinese Q3 growth hits nine-year low as debt, trade row drag

The reading will likely put pressure on Beijing to provide fresh support as investors grow increasingly concerned about the economic outlook, while the yuan and stock markets wallow at four-year lows.

The world’s second largest economy expanded 6.5 percent on-year in July-September, National Bureau of Statistics figures showed, in line with an AFP survey but marking the worst performance since the start of 2009 at the height of the global financial crisis.

It is also well down from the 6.8 percent and 6.7 percent in the previous two quarters but in line with Beijing’s target for the year.

“Faced with an extremely complex environment abroad and the daunting task of reform and development at home,” China’s economic growth remained generally steady, said NBS spokesman Mao Shengyong.

China is in the midst of a increasingly bitter trade row with the United States with both sides exchanging tariffs on billions of dollars worth of goods, fanning fears about the impact on the global economy.

The standoff comes at a tough time for Beijing, which is battling to tackle a mountain of debt as credit tightens and infrastructure investment falls.

While exports to the U.S. have held up so far, the row has sapped confidence.

“China-U.S. trade frictions have affected the market, but frankly speaking, the psychological impact is greater than the actual impact and China and the U.S. are currently in contact,” said Liu He, China’s top economic policy maker in a Friday interview with official news agency Xinhua intended to reassure markets.

Liu trumpeted a raft of new policies intended to boost the stock market and reaffirmed the importance of China’s private sector, which has suffered from a push to strengthen state-owned enterprises.

Further cooling

The Shanghai composite stock index has fallen by about 30 percent from its January high, while the yuan has slipped about nine percent against the dollar.

In response, some of China’s top financial and economic officials, including the vice-premier and head of the central bank made a concerted effort Friday to reassure investors and stem the market sell-off.

Adding to concerns were data showing fixed-asset investment growth remains bogged down. It inched up to 5.4 percent in January-September from a record-low 5.3 percent in the first eight months of the year as Beijing has reined in spending on bridges, railways, and highways.

“We doubt the latest pick-up in infrastructure spending will be enough to prevent the economy from cooling further in the coming quarters,” said Julian Evans-Pritchard of Capital Economics.

Analysts say the slowing growth could prompt an end to Beijing’s fiscal prudence, and the dimming export picture has reinforced the need for China to rely on its legion of consumers to grow its economy.

While September retail sales, a key indicator of domestic demand, saw a slight improvement from August, output at China’s factories and workshops slowed, according to the NBS.

“We expect further escalation of U.S.-China trade tensions going into 2019, which will likely be partially offset by yuan adjustment and more growth-supportive fiscal and monetary policies,” JP Morgan economists led by Zhu Haibin, said in a note.

“We expect fiscal and monetary policies to become more growth-supportive, providing a lift to headline GDP growth.”

‘Many unknowns’

Relations between the world’s two largest economies have soured this year after Donald Trump hiked tariffs in an attempt to force trade concessions from Beijing.

Washington has hit roughly half of Chinese imports and Beijing has retaliated with its own measures.

Exports still drive a significant chunk of China’s economy and Washington’s targeting of cars, machinery, electronics, consumer appliances and other products have led some firms to shift production out of the country, or begin considering it.

Uncertainties are mounting abroad, said Mao of the NBS, adding: “There are still many unknowns with China-U.S. trade frictions, so the economy will face some downward pressure.”

Exports to the U.S. have held up in the first nine months of the year as firms rushed shipments across the Pacific to beat tariffs — but economists expect to see an impact in coming months.

“If the market becomes a bit panicked... that can dampen investment, investment and trade are closely linked so this can be a vicious cycle,” said Lian Weicheng, an economist at the International Monetary Fund during a briefing Thursday in Beijing.

Business surveys already show many U.S. and European firms pausing investment plans for China as trade tensions cloud future prospects.