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China GDP slows to weakest in 30 years

JIM ARMITAGE
The Queen shares a toast with President of China Xi Jinping in October last year: Getty

China’s economic growth slowed to its weakest pace in almost 30 years as US trade wars bit hard into the country’s manufacturing base.

The world’s second biggest economy grew at 6.1% in 2019, according to official data today, way down from the double-digit percentage growth of previous years.

Some experts suggest the real pace of growth was more like 4.7%.

China’s growth is critical for UK exporters and commodities markets. Its relative weakness has been the main driver in keeping the oil price below $70 a barrel.

The country’s manufacturers have been hit hard by trade curbs from President Donald Trump’s administration, which have also severely damaged consumer and business confidence. However, investors took heart from today’s release of figures for the final quarter, which showed growth stabilising after a weak period. The growth rate for December came in at 6.9% — far above economists’ forecasts.

Oxford Economics Asia analyst Louis Kuijs said: “China can’t grow at 10% for ever and it is OK for growth to slow in a gradual way. Problems arise when it slows too much, as it did in late 2019. The good news here is that we are now getting out of that period of weakness and there seems to be momentum in the economy again.”

He recently upgraded his 2020 growth forecasts to 6%.

Analysts at Nomura said there would be a short-term bounceback but cautioned that it would not last long into the year. “We believe China could experience a short period of growth stability in Q1, perhaps even into Q2, but headwinds from the property sector, worsening fiscal conditions and limited policy space could lead to a further growth slowdown,” they warned.

Some economists countered that the improved news from December, coupled with this week’s US-trade agreement, were positive for China, and with it, the world economy.

However, the so-called Phase One trade deal has been criticised for being limited in scope. The risk remains that fragile relations could snap at any time.

China is massively indebted, with much of the debt lying with heavy industrial companies currently struggling in markets with overcapacity and low prices. Today’s data showed new home sales and property investment dropping, highlighting deep structural problems in the economy.