By James T. Areddy and Chao Deng
SHENZHEN, China -- A newly sealed trade truce with the U.S.
reduced a key source of anxiety for Chinese policymakers but leaves
them with another challenge: a need to boost consumer and business
confidence as the country faces more downward pressure on its
massive economy.
On Friday, Chinese officials said the country emerged from 2019
with an official economic growth of 6.1% -- well within the
government's target range of 6% to 6.5% but the lowest level in
nearly three decades.
The outlook remains cloudy, and some private-sector economists
warn that growth in the world's second-largest economy could slip
even further this year, to below 6%.
Trade, investment, consumer spending and business confidence are
all on retreat, while the economy continues to suffer indigestion
from debt that had helped fund its remarkable bulk-up and is
proving difficult to slash. The country also faces longer-term
stresses like an aging population, which was highlighted by Friday
data showing births had fallen to their lowest level since
1961.
Last year's trade offensive from its chief economic and
geopolitical rival, the U.S., in the form of tariffs and a campaign
targeting China's corporate champions, presented a headache for
Beijing's policymakers, taking a toll on exports and business
confidence throughout the year. Nomura economists calculate the
trade war, coupled with slower global growth, shaved one percentage
point off China's 2019 GDP figure.
The two sides this week took steps to settle the dispute with an
agreement by China to import more from the U.S., though tariffs and
angst will linger over a commercial relationship that was critical
to both countries.
The challenges can be seen in Shenzhen, an export-driven
metropolis in Southern China that has been caught in the
crosscurrents.
Just over a year ago, Shenzhen was being toasted as the cradle
of reforms that set China on a course toward a market-driven
economy. In four decades, Shenzhen had transformed itself from a
fishing village to a showcase of Chinese high-technology,
skyscrapers, trade and wealth.
Now there's gloom. "There are no bright spots for China's
economy," says Huang Bin, chief executive of a cellphone packaging
maker, Shenzhen Zhongyu Plastics Co.
Shenzhen's electronics makers were hurt by tariffs on their
goods in the U.S., but also by a more-cautious business appetite in
other countries. An overheated property market raised the cost of
living -- and anxieties.
Nontrade factors, too, weighed on sentiment, including mass
protests that roiled next-door Hong Kong for more than half a year,
clouding the business outlook and drawing global attention to the
risk of social unrest in the authoritarian nation. Shenzhen's
celebrated technology sector, including hometown companies like
telecommunications equipment maker Huawei Technologies Co. and
drone maker SZ DJI Technology Co., is facing new scrutiny from the
U.S. and elsewhere.
Pointing to "mounting downward pressure" of slower global growth
and trade along with rising instability and risks, China's National
Bureau of Statistics said Friday that "structural, systemic and
cyclical problems at home are intertwined."
In a way, the world has gotten used to Chinese growth that
exceeds the global average, and 2019 was no exception, despite the
weaknesses. China grew twice as fast as the world's 3% expansion
for the past year and still bested most emerging economies,
according to recent estimates by the International Monetary
Fund.
Last year's GDP expansion, to $14.23 trillion, was roughly the
equivalent of adding an Indonesia-sized economy to China's, a year
after tacking on an Australia-sized one. Markets did more than hold
up last year, with the Shanghai Composite Index rising 22% and the
yuan edging 1.3% higher against the U.S. dollar.
"China remains the engine of the global economy with sufficient
growth momentum," Ning Jizhe, chief of the National Bureau of
Statistics, told reporters.
Last year's growth rate, however, hung well below China's 9.5%
average annual expansion between 1978 and 2017, according to the
state-run Xinhua News Agency.
Now, with a ratcheting down in animosity between the two big
economies, the spotlight is likely to turn to China's domestic
struggles for 2020. Major government policy for this year includes
finalizing a decadelong push to double income levels and the size
of the economy from where they stood in 2010, while lifting living
standards for a remaining five million people still considered
severely impoverished.
Looming over China's downward adjustment is the question of how
much its leadership is managing the process, for example to squeeze
out debt, and how much of the slide is beyond government control,
like stubbornly high property and pork prices that are pinching
spending.
"The medium-term goal to deal with debt and financial risk often
clashes with the short-run goal to stabilize growth," said Julian
Evans-Pritchard, an economist at Capital Economics. "At the moment,
we're at a phase where growth and employment come first."
Beijing's response to its economic slowdown has divided
economists about how aggressively China needs to reflate its
economy. So far, authorities have sent mixed signals: sanctioning
more construction in places like Shenzhen and introducing a new
loan prime-rate system that could lower interest costs for
borrowers, but refraining from wholesale stimulus that in the past
included official interest rate cuts and big spending programs.
Some official statistics suggest disturbing economic trends.
Imports last year slumped 2.8% on weakening demand from companies
and consumers -- and reflecting trade turmoil, they were down
nearly 21% from the U.S., though buying pledges in this week's
trade agreement valued at $200 billion over two years should lift
Chinese imports of American goods, including soybeans.
Increasingly, Chinese industrial prices have also headed
downhill in a sign of weak demand, and producer prices overall last
year fell 0.3%. Car sales slumped 8.2% in 2019, while consumers --
whose incomes expanded slower than the economy at 5.8% -- were
squeezed by pricey pork and an upward creep in crude oil.
In cities like Shenzhen and Shanghai, office vacancy rates are
solidly in the double-digit percentage points as companies quietly
downsize. Property is a risk that could pose a major drag on the
economy, potentially by the second half of 2020, according to Zhu
Haibin, JP Morgan's chief China economist.
To keep the headline growth figures up, China has turned in part
to reviving tried-and-true growth drivers like government
investment in construction, which carries the risk of undoing
efforts to limit debt. Property investment grew 9.9% last year,
slightly faster than the 9.8% rate in 2018, though fixed asset
investment expanded only 5.4%, about a third as fast as it was
growing six years ago.
In Shenzhen, policymakers are pushing construction of a new
district called Qianhai, pitching it as an experimental financial
hub in the shadow of China's increasingly unreliable financial hub,
Hong Kong. Yet skyscrapers and subway line extensions appear to be
less powerful economic spurs than they once were, and the activity
is doing little to ease anxieties among Shenzhen businesspeople who
express concern about trade with the U.S. and Hong Kong, plus some
of the highest living costs in the country.
Even as the local government offered to halve rents on some
buildings, vacancy rates there have lifted the city average toward
25%, according to brokerage Jones Lang LaSalle. At the same time,
Shenzhen's exports and consumption weakened, dragging down the
city's growth to a pace of 6.6% by the third quarter, compared with
7.4% in the first half of 2019, according to official data.
"If Shenzhen's economy can't survive, then forget about
China's," says Mr. Huang, the cellphone package maker.
--Bingyan Wang and Grace Zhu contributed to this article.
Write to James T. Areddy at james.areddy@wsj.com and Chao Deng
at Chao.Deng@wsj.com
(END) Dow Jones Newswires
January 17, 2020 07:34 ET (12:34 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.