Economic growth in China falls as US trade battle threatens further slowdown

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Economic growth in China falls as US trade battle threatens further slowdown

Economic activity is expected to decline further as global demand for Chinese exports weakens.


China’s economic growth slowed in the second quarter (Heng Sinith/AP)
China’s economic growth slowed in the second quarter (Heng Sinith/AP)

China’s economic growth slowed in the quarter ending in June, adding to challenges for Beijing amid a mounting trade tariff battle with Washington.

The world’s second-largest economy expanded by 6.7%, down from the previous quarter’s 6.8%, the government reported on Monday.

Even before the dispute with Washington erupted, forecasters expected growth to cool after Beijing started tightening controls on bank lending last year to rein in surging debt.

Economic activity is expected to decline further as global demand for Chinese exports weakens and lending controls weigh on construction and investment which are major contributors to growth.

Beijing has responded to previous downturns by flooding the state-dominated economy with credit.

However that has swelled debt so high that global rating agencies have cut China’s government credit rating.

Chinese leaders are in the midst of a marathon effort to encourage self-sustaining growth driven by domestic consumption and reduce reliance on exports and investment.

Consumer spending has risen more slowly than planned, leaving economic growth dependent on debt-supported investment.

Retail spending in June rose by 9% compared to a year earlier, a half-percentage point higher than in May.

The increase was driven by rapid growth in the sales of higher-end consumer goods such as cosmetics and audio-video equipment.

Trade has shrunk as a share of China’s economy but the conflict with Washington threatens to dent growth.

US president Donald Trump added 25% tariffs on 34 billion dollars (£25.7 billion) of Chinese goods on July 6 in response to complaints Beijing steals or pressures companies to hand over technology.

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US President Donald Trump has slapped large tariffs on China (AP Photo/Pablo Martinez Monsivais)

Beijing retaliated by imposing the same penalty on a similar amount of American imports.

Exporters say American orders started to fall off as early as April as the war of words between Trump and Beijing intensified.

Mr Trump responded last week by threatening 10% tariffs on a 200 billion dollar (£151 billion) list of Chinese goods.

He has said he is willing to raise duties on more than 500 billion dollars (£377 billion) of imports, or almost everything Americans buy from China.

Forecasters say if threatened tariff hikes by both sides are fully carried out, that could cut China’s 2019 growth by up to 0.3%.

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