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China GDP Growth Pressured by Trade War Tensions

China GDP Growth Pressured by Trade War Tensions

(15 July 2018 - China) Economists will be pouring over the release of China's half-year economic data, including second quarter gross domestic product (GDP) figures due July 15 for any weakness in China's economic growth trend. 

It will be too early to tell the impact of proposed US tariffs totalling $US200 billion on Chinese goods.

Economists expect GDP growth will slow from 6.8 percent in Q1 2018 to 6.7 percent in Q2 2018. Retail sales and investment data will also be watched closely to see if a weakening in May continues through to June. China will release housing investment data later in the week. The data itself will back up President Xi Jinping's promise in March to keep GDP growth strong at 6.5 per cent while getting more aggressive on reducing debt.

China’s exports were stronger than forecast in June, jumping 11.3 percent according to figures from the General Administration of Customs but below May’s 12.6 percent increase. Imports rose 14.1 percent, well below May’s 26 percent surge. That resulted in a June trade surplus of US$41.6 billion, the highest level since December 2017 and up from US$24.9 billion in May. China reported a surplus for June 2017 of U$S42.7 billion. China’s exports to the U.S. rose 13.6 percent in H1 2018 year-on-year, while imports from the U.S. increased 11.8 percent in the same period.

The GDP data will be released against the backdrop of growing concern about China's ability to manage its huge debt pile and risky lending. The main focus will be on how China plans to manage the impact of the trade tariffs without upsetting financial stability. Gavekal Dragonomics chief economist Chen Long quoted that while China can retaliate it can also increase its domestic strength so its economy will not be hurt badly.

"While the government is still holding quite firmly to the financial de-risking component that it is committed to for the next three years, I think they will increasingly use monetary policy as a way to offset the impact from regulatory tightening. And another thing China can do is probably significantly increase fiscal spending, especially in the second half” Mr Chen said.

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