China’s GDP grows at slowest pace in 29 years

World’s second-largest economy grew 6.1% in 2019 as trade war and domestic pressures took toll

Don Weinland and Sun Yu in Beijing

A worker welds a bicycle steel rim at a factory manufacturing sports equipment in Hangzhou, Zhejiang province, China September 2, 2019. Picture taken September 2, 2019. China Daily via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT. TPX IMAGES OF THE DAY - RC173452F240
Experts fear domestic troubles in manufacturing have yet to take full effect © Reuters


China’s economy last year grew at the lowest rate since 1990 while the country’s birth rate fell to a record low, highlighting the domestic challenges facing Beijing despite a truce in its painful trade war with the US.

Gross domestic product grew 6.1 per cent in 2019, disappointing analysts’ expectations and revealing an economy under pressure from weak consumer spending, rising unemployment and problems in the financial system.

The question looming over the world’s second-largest economy in 2020 is whether the damage of the trade dispute has largely run its course, or, as some experts fear, domestic troubles in banking, manufacturing and property have yet to take full effect.

“Despite the recent uptick in activity, we think it is premature to call the bottom of the current economic cycle,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

“This year could be the opposite of last year, where the external environment improves but domestic stimulus efforts aren’t enough to support higher growth . . . We’re particularly concerned about the property sector.”

China’s CSI 300 of Shanghai and Shenzhen-listed stocks closed on Friday up 0.14 per cent following the data. China’s onshore renminbi strengthened 0.1 per cent to Rmb6.8651 against the dollar, its strongest rate since July.

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The GDP figures, a closely watched gauge on economic health, come just two days after China and the US signed the first step in a trade agreement, putting on hold a nearly two-year trade war while leaving in place tariffs on hundreds of billions of dollars on Chinese imports.

Economists were cautiously optimistic about the pause in the dispute, with the so-called “phase one” deal likely to help improve negative sentiment among investors over the past year.

“It’s not how high the tariffs are; it’s about what the future trend [for the trade war] will be,” said Zhu Chaoping, JPMorgan Asset Management’s global market strategist. “The signing of the trade deal shows that it will not escalate from here and sentiment will improve.”

Economic figures released on Friday provide some evidence for a modest recovery.

Although GDP growth between October and December held at 6 per cent, lower than some economists had expected, several indicators showed that activity picked up in the final days of 2019.

Industrial production, for example, rose 6.9 per cent year on year in December, higher than market expectations. Fixed-asset investment rose 5.4 per cent for the whole of 2019, a sign that capital expenditure was picking up.

The slight increase in some areas of investment were not driven by the traditional powerhouses of growth, namely housing and manufacturing. Instead, parts of the new economy helped drive growth last month.

“Seems investment in services and high tech helped boost the number somewhat,” said Zhou Hao, senior emerging markets economist for Asia at Commerzbank.

Yet Friday’s data contained several concerning indicators for China’s economy in 2020, and for many years to come.

Manufacturing investment, a measure of the health of the factory sector, fell 3.1 per cent last year, a record low underlining the toll the trade war took on China in 2019.

Urban disposable income, which rose just 5 per cent last year, adjusted for inflation, notched another all-time low. China has sought for many years to reorient its economy towards consumption-driven development, away from the investment-heavy growth that has produced a huge pile of bad debt.

Perhaps more worrying, China’s birth rate dropped to a record low of 1.05 per cent in 2019, an ominous signal for a country expected to face a shortage of young and able workers to power its growth in the next two decades.

Demographic decline is a sensitive topic in China, given that it was exacerbated by the Communist party’s longstanding “one-child policy”, which has since been abolished.


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In China’s property sector, which has been plagued by concerns over its long-term health for more than a decade, housing sales by floor space fell 0.1 per cent in 2019.

The housing market comprises up to 25 per cent of China’s GDP, although that figure is contested. A downturn in the market almost certainly will hurt China’s economic prospects.

Ting Lu, Nomura International’s chief China economist, said that a correction in housing was just getting under way in smaller cities across China that, by his count, made up about 70 per cent of the country’ floor space.

“Some people believe that there could be a stabilisation or rebound in the property market this year,” he said.

“But my view is that the correction is not over yet, especially in the lower-tier cities. The correction only started in 2019.”




Additional reporting by Xinning Liu in Beijing and Alice Woodhouse in Hong Kong

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