The U.S. trade war slowed China’s 2019 economic growth to its weakest pace in nearly 30 years

January 17, 2020, 9:38 AM UTC

China’s gross domestic product grew 6.1% in 2019, the country’s slowest rate of economic growth since 1990.

The GDP was in line with the official target range of 6% to 6.5% for 2019, a year where economic growth was marred by the effects of the U.S.-China trade war.

“China’s growth in 2019 was affected considerably by the trade war with the U.S., which brought down exports and, via weakened sentiment and confidence, weighed on investment in manufacturing,” said Louis Kujis, chief Asia economist at Oxford Economics.

China’s trade surplus with the U.S. shrank in 2019 after multiple rounds of U.S. tariffs on Chinese goods.

The 6% baseline

The 6.1% figure came in just below the International Monetary Fund’s forecast of 6.2% for 2019. The third and fourth quarters of 2019 had the lowest growth rates of the year at 6%. China’s GDP in 2018, by comparison, grew 6.6%.

Kujis says the impact of the ‘phase one’ partial trade agreement, signed on Wednesday in Washington, “is not a game changer,” but represents a positive development in U.S.-China relations, mitigates uncertainty, and helps investor sentiment in China and the wider region.

“[The trade deal] makes fruitful engagement more likely and reduces the risk of escalation and severe decoupling,” Kujis said.

Oxford Economics changed its 2020 GDP forecast for China from 5.7% to 6% as a result of the partial trade agreement.

Other analysts are less optimistic. The credit insurance company Euler Hermes forecasts 5.9% GDP growth in 2020 and 5.8% in 2021. The World Bank forecasts that the GDP growth rate will continue to decrease, predicting 5.9% for 2020, while the IMF projects 5.8%. All those estimates slip below 6%, which is widely described as a “psychologically important” baseline.

China’s State Grid, the country’s largest utility company, known for its bold economic forecasts, cautioned that in a “worst case scenario,” China’s GDP could fall to as little as 4% over the next five years. An official from the state-owned company told the Financial Times, “We used to be more bullish than the market consensus[.] Now we are doing the opposite.”

Few bright spots

Two economic bright spots in December 2019 were an 8% jump in retail sales and a growth of 6.9% in industrial production, one whole percentage point above analyst estimates.

But most of the economic news was less positive.

Besides the trade dispute, 2019 was a record year for Chinese companies defaulting on bond payments, a trend that S&P estimates will continue in 2020.

Trade uncertainties and a broader economic slowdown also resulted in a “hit on investment” in China and other Asian countries, according to a Jan. 9 economic outlook from the credit ratings agency Moody’s, which forecasts slower growth in the whole Asia Pacific region, partially due to a drop in exports to China, where economic downturn has dented consumer demand.

China’s Internet startups are struggling with cash too—venture capital investment in tech companies dropped 51.5% in the last quarter of 2019.

Finally, last year marked the lowest number of births in China since 1961. The low rate comes three years after the government halted the long running one-child policy in an as yet unsuccessful effort to raise the birth rate and avoid the development of an aging and contracting population. Rising living costs, more women joining the workforce, and changing social attitudes are all contributing to the decrease.

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