By Anna Fifield
BEIJING — The Chinese economy last year grew at its slowest rate since 1990, adding to the urgency for President Xi Jinping to reach a trade deal with the United States.
Although the trade war is not the main reason for last year’s slowdown, it is not helping.
“The economy is a much bigger problem for Xi Jinping than the trade war. The last thing he wants is a bunch of angry people protesting because they’ve lost their jobs,” said Andrew Collier, managing director of Orient Capital Research, a Hong Kong-based consultancy.
“Slowing economic growth is putting pressure on him to solve as many problems as he can, and the trade war will be top of his list,” Collier said.
Growth in the world’s second largest economy decelerated from 6.8 percent in 2017 to 6.6 percent last year, according to the National Bureau of Statistics. The slowdown is the result of cooling demand both at home and abroad.
The slowdown in the final quarter of the year was not quite as bad as many economists were expecting, clocking 6.4 percent compared with the year before.
But many economists take official Chinese figures with a large pinch of salt. Using a range of data to come up with a more reliable figure, Julian Evans-Pritchard, a China analyst at the Capital Economics consultancy, said that the growth rate probably slowed to 5.3 percent in last three months of the year.
Regardless of the number, the direction is clear, and the slowdown is being felt across the country.
Retail sales, industrial production and property sales all slowed in the final quarter of last year. Car sales were particularly poor, recording the first annual drop in more than two decades, and the unemployment rate is climbing.
From tech companies to factories, workers are being laid off. This trend could worsen after the Chinese New Year holiday at the beginning of next month, when millions of migrant workers will return to their hometowns — and may not have jobs to return to in the cities.
“My only wish for the new year is that I don’t lose my job,” said Yao Juan, a 35-year-old restaurant waitress who moved to Beijing from the central city of Wuhan. Her teenage daughter remained behind with her grandparents.
“The price of everything is going up, but my salary is not,” she said as she perused the selection at Miniso, a cut-price Japanese store. She has carefully selected the gifts she will take home for Chinese New Year next month, and she hasn’t bought anything for herself.
“I had to sacrifice online shopping, one of my biggest enthusiasms, for the greater good of the family,” she said.
This sentiment is now so widely shared that term “consumption downgrade” — adopting a more frugal lifestyle by buying only absolute necessities — has become a buzzword among many middle-class Chinese.
Gu Xi, who was out shopping for socks, said that looking for a job was a demoralizing past time. He has sent out more than a dozen resumes looking for a short-term job before graduate school, but has received only three responses. Two were offering unpaid internships and the third — a sales clerk position at Ikea — never materialized.
The 23-year-old instead took a job helping his sister run a modest guesthouse in Beijing. “It’s not an enviable job, but I feel grateful not to be idling away for the whole break, he said.
Even as domestic consumers are buying less, external demand for China’s prodigious exports is also weakening, and the country has posted its worst export numbers in more than two years last month, when the value of goods shipped abroad fell by more than 4 percent compared with the previous December.
This is not just because of the trade war between China and the United States, which has seen President Trump slap tariffs on $267 billion worth of Chinese products.
Even if the tariffs increased to 25 percent on March 1, as Trump has threatened, the cumulative impact of the tariff would knock only one-third of a percentage point off the growth rate, said Evans-Pritchard.
“The trade war is not the main drag on growth but I’m sure that one less drag would be very welcome,” he said.
With the global economy slowing, there are fewer customers around the world interested in buying what China produces.
The economy has been generally tracking downward since the growth rate breached the 14 percent mark in 2007, before the global financial crisis struck, and it is expected to slow even further this year. The World Bank forecasts China will record a growth rate of 6.2 percent in 2019.
In Beijing and across the country, authorities have been pulling out all the stops to try to avoid a hard landing for the economy, promoting measures that are both traditional and inventive.
China’s central bank has already cut the proportion of deposits that banks must hold in reserve, a move that could free up almost $120 billion currently locked in their coffers.
The central government, meanwhile, is trying to support companies by cutting corporate tax rates for small businesses and reducing value-added taxes in some industries, particularly in manufacturing. It is also pouring more than $125 billion into new rail projects.
Beijing’s mayor, Chen Jining, on Monday urged malls, supermarkets and convenience stores to stay open later at night to encourage service industries to hire more workers and shoppers to spend more money.
“This year, Beijing will unleash its potential for promoting higher consumption,” Chen said in a report outlining economic targets for 2019.
The Beijing Municipal Bureau of Commerce said more than half of the convenience stores in the capital will be open 24 hours by 2022.
The province of Hebei, which encircles Beijing, is meanwhile thinking about giving workers Friday afternoon off so they will have a longer weekend in which to shop. It is also promoting more flexible working hours “to encourage new areas for consumption growth,” according to a provincial government plan.
But Collier of Orient Capital Research does not expect these efforts to have much impact. “They’re putting their finger in the dyke but the water is flowing over the dam anyway,” he said.
Lyric Li and Liu Yang contributed to this report.
Explainer: Why China's economy is worse than it looks
BEIJING — China’s economy is slowing, and the slowdown is likely worse than Beijing says.
China announced Monday (Jan 21) that its economy grew 6.4 per cent in the final three months of last year compared with a year earlier. For the full year, according to official data, the Chinese economy grew 6.6 per cent.
The figures suggest China’s economy is posting new, but manageable, lows. The three-month number shows the slowest pace since the global financial crisis a decade ago. The annual data shows the weakest pace of growth since 1990, when China’s economic miracle stumbled in the aftermath of the crackdown on protesters in Tiananmen Square the year before.
Still, the figures indicate only a modest downshift from earlier levels. They paint a picture of a maturing economy gently coasting toward a slower but more manageable growth rate.
More detailed data tell a different story.
From investment to consumer spending to factory activity, the Chinese economy slowed markedly in the second half of the year.
That is bad news not only for Beijing, which is contending with President Donald Trump’s trade war, but also for a world that has long looked to China for a helpful economic boost.
Some economists say the picture will brighten later in the year, and figures for the last month of 2018 suggest the slowdown is bottoming. But recent moves by the Chinese government show its leaders feel the economy needs a helping hand.
BY THE NUMBERS
Detailed monthly data released Monday suggested the economy picked up in December, as Beijing took steps to rekindle growth.
Retail sales and industrial output ticked up in December from November, suggesting consumers and businesses alike were feeling a little better as the year came to an end.
But those monthly figures could not fully make up for a lackluster performance in the second half of the year.
Retail sales slowed markedly during those last six months, weighted by a steep tumble in activity at China’s car dealerships and broad weakness in smartphone sales. Investment in fixed assets like new factories and office buildings was anemic.
“China’s economy has slowed significantly in recent months,” said Mr Louis Kuijs, a China specialist at Oxford Economics, a large consulting firm.
The question now is whether an improvement in December will carry over to the start of 2019.
The Chinese government is trying to nudge growth along without adding to the country’s vast pool of debt accumulated during the past decade. While China still has many ways to rekindle growth, many of those options have difficult trade-offs.
China’s economic problems began before Trump began imposing tariffs on Chinese-made goods. That said, the trade war is not helping.
Activity has also slowed lately at many export-oriented factories. They overproduced in the autumn, rushing to ship goods to the United States before a feared increase in tariffs on Jan. 1 that did not end up happening. Importers in the United States found themselves with full warehouses and have cut further orders. Many Chinese factories have eliminated overtime and looked for other ways to trim employment costs.
“Manufacturing has sunk from buoy to anchor over the past two quarters,” the China Beige Book, an economic consulting firm, concluded in an analysis last month.
The Chinese government had hoped that the services sector would expand when manufacturing contracted. But the overall economy remains so dependent on manufacturing that the services sector has also weakened in recent months, the China Beige Book concluded.
DRIVING THE SLOWDOWN
Some economists note that the biggest factor driving the weakness in retail sales in China, which by some estimates has accounted for half or more of the entire slowdown, is a sharp fall in auto sales.
Auto sales have been falling since summer, with sales in December down a precipitous 19 per cent from a year earlier.
But China had a modest tax break for car buyers in 2016 that became smaller in 2017 and then disappeared entirely last year. Those tax policies may have pulled ahead some demand to 2016 and 2017, leaving the market poised for a drop last year.
“It is because we had a high number in 2017 that the 2018 market has so much pressure,” Mr Cui Dongshu, secretary-general of the China Passenger Cars Association, said in a phone interview.
Sliding sales at car dealerships prompted a wave of production cuts at assembly plants across China. That in turn cut into demand for auto parts, steel, glass and other industries.
But help may be on the way. Lian Weiliang, vice chairman of the National Development and Reform Commission, said at a news conference last week that China would draft policies to “stabilize” consumption of cars and household appliances.
HOW LONG WILL IT LAST?
Some economists argue that after the next few months, the Chinese economy will start to improve.
The Chinese government has allowed big-ticket projects like new subway lines in many cities to move forward, and it has pumped more money into the financial system. China’s leaders have also pledged to cut taxes to shore up sagging business sentiment.
The efforts “will boost the economy in the second half of this year,” said Mr Shen Jianguang, chief economist at JD.com, a big Chinese online retailer.
One big option that China still has: help the housing market.
Building and outfitting homes and other buildings represents as much as a quarter of the country’s economic activity by some estimates.
Along with slumping car sales and a sharp drop in the stock market, a weakened housing market dampened consumer confidence.
China could take measures like loosening limits on mortgage lending and easing the ability of property developers to buy land and deal with their debt.
But that approach comes with dangers. The sector is already overbuilt and plagued with speculation, something Chinese authorities have long tried to contain.
“Property easing will be used as a last resort, not a priority,” said Mr Tao Wang, a China economist at the Swiss bank UBS.