The unnerving ability of Chinese authorities to hit or surpass growth targets was displayed again in Q2 2018. The growth aimed for was 6.7% (annualised) and that was just what was delivered. There is always a degree of healthy scepticism about Chinese growth data in certain quarters.
The Q2 data came in marginally below the Q1 level of 6.8%, down by 0.1% (re-education camp for somebody?), representing a nominal slowdown, but a level of growth that any major industrial economy would kill for. Chinese authorities are attempting to manage a significant debt problem whilst dealing with Donald Trump’s attempts to rebalance Sino-American trade via tariffs.
The most recent salvo in the trade war was application of tariffs on $34 billion worth of Chinese exports to the USA on the 6th of July. It also is threatening to put tariffs on a further $200 billion worth of goods in the near future. Mr Trump has suggested that up to $500 billion worth of trade (last year’s exported goods value) could be affected by US sanctions eventually.
Whilst exports are a key component of the Chinese economy, it has a vast domestic market of nearly 1.4 billion – it is this market that the rest of the world hopes to see opened up to their exports, of course. According to the Economist’s Intelligence Unit, weakening domestic demand may be a more significant headwind to Chinese growth going forward than a trade war with the USA. Currently, China is enjoying a record $29 billion trade surplus with the USA (June data).
The effect of the initial round of US tariffs is likely to be seen in the July data when it becomes available. This will relate to the initial tariffs on $34 billion worth of Chinese exports. In the first two quarters of 2018, Chinese exports to the USA rose by 13.6% whereas US exports to China were up by 11.8%.