China released a raft of economic data Friday morning, but the headline figure was 6%. That’s the rate of GDP growth in the third quarter as compared to the same period last year, and it’s lower than the 6.1% growth analysts polled by Reuters had anticipated. In fact, it’s China’s lowest quarterly economic growth since records began 27 years ago in 1992.
However, the data wasn’t all bad, a result that Beijing touted in its announcement of the numbers. According to the National Bureau of Statistics, China’s industrial output rose 5.8% in September, up from a 17-year low in August, and retail sales jumped 7.8% year-on-year last month, too.
“The national economy is generally stable, the economic structure is continuously optimized, and people’s livelihood and welfare are continuously improved,” Mao Shengyong, the spokesperson for China’s National Bureau of Statistics said during a news briefing, adding that the economy is still facing “downturn pressure.”
But is that pressure—and China’s slowing growth—coming from the trade war?
Don’t mention the White House
The trade war seems like the simplest explanation for China’s diminishing economic growth. The White House has slapped tariffs up to 25% on a $550 billion basket of U.S.-bound exports and Chinese exports to the U.S. dropped 22% in September.
But while U.S. China hawks would no doubt like to take credit for dinging Beijing’s economy, Julian Evans-Pritchard, Senior China Economist at Capital Economics, notes that exports globally have decreased and argues that the trade war sanctions likely aren’t the cause of China’s slowdown.
“A lot of the negative impact of tariffs have been offset partially by a weaker exchange rate,” Evans-Pritchard says, adding that you only need a depreciation of a few percent in China’s renminbi to offset $250 billion of tariffs.
Evans-Pritchard notes that an increase in transshipment—the dubious process of re-routing exports through a third country to mask the product’s country of origin—has also helped exporters skirt the impact of Washington’s trade tariffs.
Still, the trade war will begin to have a notable effect on China’s economy if it continues. One of the primary worries for Beijing is that the heightened tensions and higher export costs will encourage foreign firms to move out of China, slashing the nation’s level of foreign direct investment.
“We haven’t seen that yet because most firms were taking a wait-and-see approach. [But] in recent months there’s been a growing realization this will probably be a drawn-out conflict,” Evans-Pritchard says.
If not the U.S., then who?
Domestic factors were the biggest drag on China’s economy in the third quarter. Investment is slowing, while the pickup in infrastructure spending is plateauing; credit growth has failed to respond to monetary easing and consumer inflation has surged—pork prices, in particular, soared 47% in August as China struggles to contain a devastating outbreak of African Swine Fever.
There’s also the fact that China’s GDP—which averaged 10% annual growth for much of the 40 years since the country opened up to foreign markets—was destined to run out of steam. In fact, if the headline “China’s slowest growth in 30-years” sounds familiar, it’s because China’s Q2 GDP growth of 6.2% was then also the slowest since 1992, signifying a definite downward trend.
“The key point from China’s economic data would be that growth is slowing with or without the trade war so, even if the trade war is resolved, it’s not going to be a panacea,” Evans-Pritchard says.
Global outlook
Depending upon how you measure it—by purchasing power parity or in U.S. dollar terms—China’s $14 trillion economy is either the largest or second largest in the world. The country’s GDP accounts for a close to a third of global growth. So naturally, a slowdown in China has repercussions for world economies.
Gary Hufbauer, of the Peterson Institute for International Economics, estimates that a one percentage point drop in Chinese growth would probably take 0.2 percentage points off global growth, reports the BBC.
However, Beijing has been anticipating slower growth for years, beginning a propaganda campaign in 2014 that promoted less than 7% expansion as the “new normal.”
While recent declines appear steeper than Beijing initially planned—prompting Premier Li Keqiang to warn earlier this year that hitting the nation’s full year target of 6% to 6.5% growth will be “very difficult”—global industries can likely adapt to China’s decreased growth.
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