China's economy grew 6.1% in 2019, government figures released on Friday show, the slowest pace since 1990. While the economy stabilized at year end, the weak showing undermines prospects of substantive reform in sectors such as state-owned enterprises.
It's a far cry even from this time last decade, with growth in double digits as recently as 2010 (10.6%, if you're counting). Although there's no doubt China's economy is riding a rough patch, the raw numbers made it impossible to continue at that kind of clip. It was in 1990 that China's economy first crossed the $1 trillion barrier. It has now risen to $14.4 trillion, two-thirds the size of the United States.
That means China added output of $1.1 trillion last year alone. In other words, China added in 12 months almost the entire economy of Mexico, which itself ranks 15 th among the world's most-productive nations.
China-focused stocks inched forward after the data on Friday, with the CSI 300 of the largest stocks listed in Shanghai and Shenzhen up 0.1% at the close. Hong Kong's Hang Seng Index advanced 0.6%. Mainland shares posted world-beating performance in 2019, with the market up 39.9% thanks largely to a start-of-the-year rally that ran through last spring. Beijing hopes this Wednesday's U.S. trade deal will lighten the gloomy business sentiment. But the central government is limited in its scope for stimulating the economy due to worries over corporate credit and bad loans at banks. Investors appear only to have taken the Phase 1 deal lauded by Trump back in mid-October as serious as of early December, but the CSI 300 is up 8.5% since then.
China has less demographic wind behind its sales. Besides GDP, Friday's figures from the National Bureau of Statistics also show that China's population has pushed past 1.4 billion for the first time. But the meager 0.3% increase stems from a birth rate that has sunk, at 10.5 per 1,000 people, to its lowest level since the People's Republic of China was formed 70 years ago. The United States had 11.8 births per 1,000 people in 2017, the last full-year figure.
The Chinese government is expected to lower its forecast for 2020 GDP to growth of "around 6%" in March, when it sets its priorities for the year. That's down from the 6% to 6.5% mark it predicted/mandated for 2019. Beijing hits its targets, but only just in this case. Of course, 6.1% growth would still be the envy of the developed world, with the U.S. Federal Reserve anticipating U.S. growth of 2.2% this year.
The raw numbers of China's advance are still huge. There are a lot of doubts about the reliability of China's GDP figures. Local officials often have their performance benchmarked against economic growth, so they have an incentive to overinflate the numbers. The national government also believes it receives a mandate to continue Communist rule thanks to its steady management of the economy, something it loves to set out in grand five-year plans.
Some analysts look to figures such as electricity use instead to get a more-realistic handle on how China's economy is doing. By that measure, it may be a couple of percentage points lower than the headline figure.
China's largest electricity utility, the State Grid Corp. of China, is already witnessing dented demand for power across all of China's 23 provinces. In 2019, 10 of its 25 regional operations posted a loss.
The State Grid has warned that the country's growth rate could grind to 4% within the next four years, according to internal forecasts revealed by the Financial Times. The grid's internal assessments are more bearish than the overall government, an official told the FT. Independent data show that energy consumption is currently growing at 4.7% in China, year on year, which likely matches industrial output.
An entirely unscientific survey of my friends and contacts who run businesses in China suggests that business sentiment continues to be very poor. The economy was already slowing before U.S. President Donald Trump launched his trade-war offensive almost two years ago. There's been little to improve my friends' spirits.
Although China and the United States have agreed a ceasefire in the form of a Phase 1 trade deal, the trade picture is still worse than when Trump began raising tariffs. His first salvo came in February 2018, when the United States implemented higher import taxes on solar panels and washing machines. Higher duties on steel and aluminum came in March 2018.
China retaliated with tariffs on $3 billion in U.S. imports, and a sequence of tit-for-tat trade taxes ensued. Phase 1 will see China buy an additional $200 billion in U.S. imports over the next two years, on top of its 2017 imports of $186 billion, in the form of: $78 billion in manufacturing; $54 billion in energy; $32 billion in services; and $30 billion in farm goods.
But the United States is still charging an extra 25% import tax on $250 billion in Chinese goods, taxes that U.S. companies must pass along to their corporate customers or consumers. China keeps retaliatory tariffs on $100 billion in U.S. imports in place. These latest numbers have a nice ring to them: 1.4 billion people, $14.4 trillion in GDP. Chinese nationalism is rising, with figures such as these used to back the idea that the country is striding forward after being held back by outside forces for so long.
So the statisticians and China patriots will have a spring in their step as they take off for the spring festival. Lunar New Year falls on Jan. 25 this year, a little earlier than normal, and traditionally marks the end of winter. Many of those 1.4 billion people are taking a two-week break to head back to family hometowns.