China's Financial Leaders Attempt to Buoy Investor Confidence as Stock Markets Slide

Andrew Cummings
October 21, 2018

China's economy saw its growth drop slightly in the third quarter of the fiscal year, reporting the slowest growth since 2009.

Although the headline figure was in line with the government's target of around 6.5 percent for the year, it was down from the 6.7 percent growth in gross domestic product in the second quarter of this year.

The Trump administration argues that China has more to lose in a trade war - and will face pressure to reach a truce because it exports more than it buys from the United States and because its economy is decelerating while the US economy looks strong.

The NBS said the GDP expanded 6.7 per cent year-on-year in the first three quarters of 2018 to about 65.09 trillion yuan (about $ 9.38 trillion). It inched up to 5.4 per cent in January-September from a record-low 5.3 per cent in the first eight months of the year as Beijing has reined in spending on bridges, railways, and highways.

Retail sales, factory output and investment in factories and equipment - bigger drivers of growth than exports - all weakened in the latest quarter.

However, growth could well decelerate further as the effect of US tariffs on Chinese exports take full effect, let alone if the US adds new sanctions, as US President Donald Trump has threatened.

China's economic growth cooled to its weakest pace since the global financial crisis in the third quarter as the trade war with the United States began to bite.

Those problems have prompted officials to step up stimulus and pledge further support, but the impact of those measures has yet to kick in and more may be needed.

China's yuan inched up against the USA dollar on Friday but was still set for a weekly loss.

Last month, Washington invoked tariffs on an additional $200 billion in Chinese imports.

So far exports to the USA have held up but economists expect trade frictions to weigh on growth in the coming months and into next year.

As the trade dispute between the world's two largest economies shows no signs of ending, China's leadership is expected to be forced to give up structural reforms aimed at minimizing financial stability risks - a factor that would temporarily weigh on economic growth.

Chinese Vice Premier Liu He said Friday that the country will strive to maintain steady economic growth and properly ward off financial risks with the macro leverage ratio kept relatively stable.

"The regulators don't want to encourage expectations that the National Team will always save the day", said Nie Wen, an economist at Huabao Trust.

China is in the midst of an increasingly bitter trade row with the United States with both sides exchanging tariffs on billions of dollars worth of goods, fanning fears about the impact on the global economy. The statistics bureau now publishes growth rates for the technology and commercial-services sectors, highlighting the contributions of the new economy that policy makers are doing more to encourage and support.

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