SHANGHAI – China's economic downturn worsened in the July-September period, according to data released on Friday as the trade war with the United States and a host of other problems leaves Beijing struggling to reach its targets.
Figures show that China continues to grow at its slowest pace of almost three decades of modern journalism. While China is still expanding faster than any other major economy, Friday's data suggests that the pace may be at the low end of Beijing's official target, which could raise concerns about broader prospects for global growth.
China's economic output grew by 6 percent in the third quarter compared to a year earlier, according to official statistics, the bottom end of Beijing's full-year target of 6 percent to 6.5 percent. In the first three quarters of the year, production increased by 6.2 per cent compared with a year ago.
China's growth should slow down from the booming pace of recent years. The economy is now twice as large as it was about a decade ago. The workforce is shrinking, and the country is already full of roads, rails and factories, limiting potential new investment.
The question is whether there are any sharp falls along the way to ever slower growth.
"What policy makers want is to make the process as long and as gradual as possible," said Larry Hu, head of China's economy at Macquarie Group, a major Australian financial services company. "The biggest challenge is finding new growth drivers from consumption and technology, as old ones like real estate and globalization are disappearing."
Mao Shengyong, the spokesman for the National Bureau of Statistics, said in a news briefing in Beijing that the economy was not doing as well given global difficulties as curbing international trade. "The national economy is generally stable, the economic structure is constantly being optimized, and people's livelihoods and welfare are continuously improving," he said.
Despite the reassuring words, China is struggling with a number of economic problems. Trade is just one of them.
The conflict heated up in the third quarter of this year, when President Trump expanded tariffs in early September to hit many consumer goods from China. Exports to the US fell by 22 percent in September compared to September 2018, when exporters drove to ship their goods ahead of an earlier set of tariffs.
US tariffs are only part of China's overall economic downturn. Exports to the United States make up about 4 percent of the Chinese economy. About half of the value of these exports comes from imported goods such as semiconductors and oil, said Nicholas Lardy, a longtime China specialist at the Peterson Institute for International Economics, so the net importance of exports to the United States is even less.
China has also increased exports to developing countries. As a result, total exports in September were only down 3.8 percent.
In fact, much of the decline has been domestic. China has been reluctant to force its debt-driven financial system to lend even more money to sustain short-term economic growth.
With the conspicuous exception of the automotive industry, industrial production and retail sales were quite strong in September. However, as consumer confidence eroded, car sales fell.
Car sales account for 5 percent of China's economic output, according to official statistics, which means they play a greater role in China's growth than exports to the United States. Even foreign companies such as General Motors collect virtually all their cars locally, with almost exclusively Chinese-produced parts.
But these days, households in China just don't buy cars the way they used to.
Sales of passenger cars fell 6.6 percent in September from a year earlier, a sharp fall for an industry that was once accustomed to double-digit annual growth in percent.
Car sales fell during the summer of 2018 and became serious after the winter. An expected improvement this summer has not happened.
Cui Dongshu, secretary general of the Chinese passenger car association, said that September was not as bad as some in recent months. "Sales are improving, but very slow, due to weak consumption," he said. "The purchasing power of families is still not enough."
Chinese automakers had planned to export many cars to the United States starting this winter. But Trump's tariffs have made it much more difficult, prompting an automaker, Guangzhou Auto, to indefinitely halt its plans to enter the US market.
Weakness in the real estate market has also squeezed growth and hurt consumer sentiment. A decade-long rise in house prices gave many in China, where the homeownership rate was high, the feeling that they were prosperous enough to flush over on other purchases. But prices have largely stabilized, even falling in some smaller cities, and many families are struggling with large mortgage payments.
China's biggest challenge may be slower investment, which weakened further in September. Although state-owned companies continue to make money in new projects, foreign investment has faltered, especially in September; Some companies are diversifying away from China.
"We have seen a significant divestment of multinational companies in this part of the world over the last 18 months," said Mark Webster, a partner in the Shanghai office of BDA Partners, a New York investment bank specializing in Asia.
The trade war is only part of the problem. Multinational companies are complaining about much tighter regulatory action in China, especially antitrust cases. They also face extensive overcapacity in many industrial sectors, forcing companies to reduce prices repeatedly to stay in business and destroy profit margins.
The volume of mergers and acquisitions of foreign companies investing in China fell 89 percent during the first half of the same period last year to just $ 6.3 billion, Webster said.
Ailin Tang contributed research.