Growing apart

China is exporting less to the US

I used to say he was a good friend of mine. We’re probably not quite as close now,” Donald Trump said of the relationship with his Chinese counterpart Xi Jinping this week.

Trump’s claim to being a personal pal of Xi’s has always been unconvincing and his celebration of China’s worst GDP data for more than a quarter of a century this week was hardly a sign of bosom buddy behaviour.

The economy grew by 6.2% in the second quarter on the same period last year, the slowest rate since the start of 1992, when quarterly readings were first taken.

As ever, there were ways of picking out a few positives. Retail sales and industrial output beat expectations in June, as did investment in the first half of the year. But the gloomier assessments saw signs of worse to come, especially in the export figures, which fell 1.3% year-on-year in June.

That was the first full month that higher tariffs were in effect on $200 billion of Chinese goods and as far as Donald Trump was concerned, the broader slowdown was a vindication of his approach.

“China’s 2nd Quarter growth is the slowest it has been in more than 27 years. The United States tariffs are having a major effect on companies wanting to leave China for non-tariffed countries,” he tweeted on Monday, in a bid to claim responsibility for the slowdown. “Thousands of companies are leaving. This is why China wants to make a deal with the US, and wishes it had not broken the original deal in the first place.”

It was all too much for the Global Times, which countered that the American president was trying to “scare China”, as well as distract attention from growing discontent in the US at the impact of the tariff campaign. “Trump continued picking his one-string banjo and offered an arbitrary conclusion on how the tariffs have been paid for by China, not US taxpayers,” it scoffed.

“Isn’t it odd to have such confidence [to laugh at China],” the newspaper added, highlighting that China’s growth rate was more than double that of the American economy.

Xinhua’s commentary – under the headline ‘Chinese economy glitters with slower growth rate’ – took a different view to the American president’s as well.

There were two main points: that total exports had increased 6.1% in the first half of the year, demonstrating how the “interconnection” between China and its other trade partners would outweigh the difficulties with Washington; and that more than 60% of growth was coming from domestic consumption, with disposable incomes growing faster than the economy in general.

That meant that the trade row with Washington wouldn’t be as damaging as Trump claimed and it also signalled that it was foolish for other countries to fall out with Beijing in the same way.

Writing in the Financial Times James Kynge reasoned that the latest GDP data “hardly constitutes a rout” and in an editorial column in that same paper it pointed out the Chinese will add output equivalent to the entire Australian economy if they maintain growth at the same levels of the first six months of 2019. (This is a point WiC has been making for several years – if you fixate on the slower GDP growth percentage masks the fact that the absolute amount of renminbi GDP added to the economy each quarter fluctuates far less, as over the years the size of the economic pie has risen. It now stands at about $13.6 trillion in dollar terms.)

Probably the more immediate risk is that trade tensions start to torpedo sentiment in China’s corporate sector. A sharper contraction in export orders could feed through into job losses and lower spending from consumers. Beijing might then try to bolster the economy with stimulus measures but it doesn’t have the same firepower as in the past, with its debt-to-GDP ratio more than doubling over the past decade.

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