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    Trade War Targets Foreign Investments in China, Beijing Should Prop Up Economic Confidence - Pundit

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    The growth of China’s gross domestic product (GDP) decelerated to 6.3 percent from the year earlier in the first half of 2019, in line with the 6-6.5 percent target span, the National Bureau of Statistics said in a statement on Monday.

    According to the bureau, in the second quarter of 2019, China's GDP growth decelerated to 6.2 percent from 6.4 percent in the first quarter, marking the slowest pace since 1992. While these figures fit into Beijing's GDP growth target span of between 6 and 6.5 percent for 2019, they also show that China's economy has been reportedly under pressure because of the ongoing trade war with the United States.

    Pauline Loong, Award-Winning Researcher and head of Asia Analytica shares her insights on the situation.

    Sputnik: According to Chinese government reports, the country's gross domestic product grew at 6.2 percent in the quarter ended June - the slowest quarterly growth rate since 1992 and down from 6.4 percent in the previous quarter. How significant is this and what are the causes for this slowdown in growth for China?

    Pauline Loong: It is significant in that the slowdown is being confirmed, it's not significant in the sense that it's widely accepted that the Chinese economy was slowing down well before the first shots were fired in the trade war.

    The economy was already on a knife edge.

    Now with the pressures from the trade war, things have just got worse, a little more quickly and again you have to look at the background. China is facing a rising debts mountain that is almost three times as large as GDP, compared with 140 percent, a decade ago.

    Between 2007 and 2018, Chinese household debt rose nine fold against the three fold increase in nominal household incomes and NPLs continue to rise.

    I could go on but it is quite well known that the economy was facing a lot of difficulties and now with the trade war as well. Things are getting really bad for China and the Chinese government is looking at some very serious options.

    Sputnik: When we look at this slowdown in growth; how much is this attributed to the current ongoing trade war between the US and China? Essentially are we seeing the true effect of the trade war between the US and China, or is there more to it than that?

    Pauline Loong: The numbers that we're seeing for the second quarter is only minimally attributed to the trade war.

    As I said, the Chinese economy was already on a knife edge. If the trade works continues, the biggest danger is to come. The biggest danger does not come from slowdown in growth as such but in terms of foreign investment, leaving China and this is not just foreign money.

    Chinese factories themselves are already looking at Southeast Asia, Vietnam, Indonesia, Malaysia and other places where they could produce in order to get away from a trade war that many people say will not end too soon.

    Sputnik: What actions and policies could we see from Bejing to protect economic growth and moreover the country?

    Pauline Loong: In terms of domestic growth expect the usual raft of stimulus policies, more accommodative monetary policy to lower interest rates, tax breaks, and investment push the government and state owned entities spending more money investing in new projects.

    What’s even more important is that the government will try to prop up confidence in the system - that is more important than growth.

    You can grow a little quicker, you can grow a little slower but it's not the end of the world to grow at 6 percent, or even 5 percent or 4 percent. That's the sort of growth the developed world would really kill for.

    What is more important is if there is a sudden drop in confidence in the system, which would be very bad.

    I can see the government moving very strongly to ensure that confidence in the system does not slip, so that when certain small banks get into trouble, as they did over the past couple of weeks, the government can immediately say ‘We are behind it, do not worry’. So I believe that is going to be the new focus in Beijing policy.

    Views and opinions expressed in this article are those of Pauline Loong and do not necessarily reflect those of Sputnik.

    The views and opinions expressed in the article do not necessarily reflect those of Sputnik.

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