China’s Economy Slows Further, Testing Government Policy Stance

Policy makers are allowing the world’s second-largest economy to drift lower as they seek to clean up the financial system and curb excessive credit growth. With a drop off in exports to the U.S. expected to continue as the trade war hits, the economy is likely to continue struggling as deflationary pressures hit company profits.

Even with the slowdown, year to date growth of 6.2% suggests the government can hit its 6% and 6.5% for 2019. Until now, officials have focused on limited, targeted measures such as reserve-ratio cuts and credit support, wary of expanding the nation’s already heavy debt load.

“Momentum has been easing since the second half of 2018, driven by industrial weakness and moderating consumer demand,” said Li Wei, a senior economist at Standard Chartered Plc in Shanghai. “The protracted U.S.-China dispute, which now goes well beyond just trade, has hit the sentiment badly. More policy stimulus can be expected as growth is now on the brink of sliding below the official target.”

Further Details from the Report:

• Infrastructure investment growth picked up to 4.5% from 4.2% in the nine months to September
• The contribution of consumption to GDP growth increased to 60.5% from 55.3% reported in the second quarter

“The economy would almost surely slow further with the current policy stance,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “Due to the lack of demand now, the government has to create more demand by itself through infrastructure spending. Even a trade deal is not an substitute for an escalation of stimulus.”