While China’s government policies have constrained growth in some economic sectors, its GDP report for 2Q18 indicated ongoing growth overall, reaching 6.7 percent YoY compared to the 6.8-percent pace reported for 1Q18. Considering growth components, the factors pressuring economic growth include the government’s measures to supervise risks associated with the property sector and local governments’ investments. As a result of such measures, growth of investments in durable assets dropped from 7.5 percent YoY in 3M18 to 6.0 percent YoY in 6M18.
The service sector has tended to grow well, as affirmed by higher GDP growth in the tertiary industry. Although risks are looming due to trade disputes with the US, which recently announced new import tariffs of 25 percent on Chinese goods worth USD50 billion, China’s international trade still recorded high growth in 2Q18 and impacts of such US-China tension may remain limited this year. China is not relying much on exports, and its domestic consumption and investment contribute more than 90 percent of its GDP components. However, if the conflict is prolonged, fresh industrial investment will likely fall, thus hurting future growth of the overall economy.
Looking ahead, protracted trade disputes between the US and China could challenge China’s authorities in their attempt to sustain long-term economic stability. KResearch views that, eventually, China may explore proper ways to negotiate with the US to mitigate adverse impacts on the national economy. Pending any outcome of such negotiations, the Chinese government may have to map out a policy to promote domestic economic sectors, which at the same time will mitigate the trade disputes. The issue to watch is a decision about the “Made in China 2025” policy that is the Chinese government’s tool to drive their economy in the long term and also the main target of the US trade war.