China: Facing Economic Slowdown?

China’s economy grew by 6.2 per cent in the second quarter of 2019. This is the lowest growth since March 1992. Nevertheless, it falls within official GDP target for 2019 of between 6-6.5 per cent. It also reflects the continuing trade war with the U.S.

China’s marginalized private sector provided the main driver of industrial growth in June, expanding by 8.3 per cent. Fixed asset investment grew by 5.8 per cent while investment in mining surged by 22.3 per cent in the first half of 2019. Retail sales grew by 9.8 per cent while imports declined by 7.3 per cent in June and exports fell by 1.3 per cent on a year on year basis.

“Uncertainty caused by U.S.-China trade war was an important factor and we think this will persist” says Tom Rafferty, The Economist Intelligence Unit.

Apple’s sales in China have tumbled. Its revenue dropped 21.5 per cent in second quarter of 2019 compared to a year ago. Revenue from China of USD 10.2 billion is 18 per cent of Apple’s total revenue.

Americans are buying more from suppliers in Vietnam, Taiwan, Bangladesh and South Korea, as they try to avoid U.S. tariffs on Chinese consumer goods.

The expectation is China will unveil more stimulus measures to stabilize growth. Lowering interest rates is another possibility. At USD 26 trillion, China will rise above America in nominal GDP terms by 2030. That’s according to HSBC. And India will be the third largest economy by then.

Implications for Malaysia?

In the immediate, Malaysia will benefit from relocation of some electronics firms from China to Malaysia because of U.S. tariffs. That is perhaps outweighed by a general decline in exports to China. We need new measures to overcome a general slowdown in 2020!

Reference:

China's economic growth slumps to lowest in 27 years as the trade war hits, CNN, 15 July 2019

China economy reports lowest GDP growth on record for second quarter as US trade war bites, SCMP, 15 July 2019