SHANGHAI- Chinese Premier Li Keqiang said it is “very difficult” for China’s economy to grow at a rate of 6 percent or more because of the high base from which it was starting and the complicated international backdrop.
The world’s No.2 economy faced “certain downward pressure” due to slowing global growth as well as the rise of protectionism and unilateralism, Li said in an interview with Russian media which was published on the Chinese government’s website, gov.cn.
China’s gross domestic product (GDP) grew 6.3 percent in the first half of the year, and Li said the economy was “generally stable” in the first eight months of the year.
“For China to maintain growth of 6 percent or more is very difficult against the current backdrop of a complicated international situation and a relatively high base, and this rate is at the forefront of the world’s leading economies,” Li was quoted as saying.
Analysts say China’s economic growth has likely cooled further this quarter from a near 30-year low of 6.2 percent in April-June. Morgan Stanley says it is now tracking the lower end of the government’s full-year target range of around 6-6.5 percent.
In response, the authorities have increased support, announcing on Sept. 6 a cut in the reserve requirement ratio (RRR) for the third time this year, releasing 900 billion yuan ($126.35 billion) in liquidity into the economy.
The slowdown in China’s economy deepened in August, with industrial production growing at its weakest pace in 17-1/2 years amid rising US trade pressure and softening domestic demand.
Retail sales and investment gauges also worsened, data on Monday showed, reinforcing views that China is likely to cut some of its key interest rates this week for the first time in over three years to prevent a sharper slump in activity.
Despite a slew of growth-boosting measures since last year, the world’s second-largest economy has yet to stabilize, and analysts say Beijing needs to roll out more stimulus to ward off a sharper slowdown.
Industrial output growth unexpectedly weakened to 4.4 percent in August from the same period a year earlier, the slowest pace since February 2002 and receding from 4.8 percent in July. Analysts polled by Reuters had forecast a pick-up to 5.2 percent.
In particular, the value of delivered industrial exports fell 4.3 percent on-year, the first monthly decline since at least two years, Reuters records showed, highlighting the growing toll on Chinese manufacturers from the escalating Sino-US trade war.
“After worsening across the board in July, growth in industrial production, capital spending and retail sales fell even further last month,” said Martin Lynge Rasmussen, China Economist at Capital Economics in Singapore.
“With a strong rebound unlikely any time soon, we anticipate that policymakers will ease monetary conditions further in the coming months.”
August saw dramatic escalations in the bitter year-long trade row, with President Donald Trump announcing new tariffs on Chinese goods from Sept. 1, and China letting its yuan currency sharply weaken days later.
After Beijing hit back with retaliatory tariffs, Trump said existing levies would also be raised in coming months, in October and December.
While the two sides are set to resume face-to-face negotiations in early October, most analysts do not expect a durable trade deal, or even a significant de-escalation, any time soon.
“August usually is a month that exporters prepare orders for Christmas products, but the figure showed that the manufacturers are not very optimistic about the prospect of Sino-US trade negotiations, and cautious about building up inventories,” said Nie Wen, economist at Hwabao Trust in Shanghai.
Several analysts said in recent weeks that China’s economic growth was already testing the lower end of Beijing’s full-year target of around 6-6.5 percent, which is likely to spur more policy easing. Second-quarter growth cooled to 6.2 percent, the weakest in nearly 30 years.
Traders expect a cut in the central bank’s medium-term loan facility rate (MLF) as early as Tuesday, which would open the way for a reduction in the new loan prime benchmark rate (LPR) later in the week.
But room for stimulus is believed to be limited by worries about rising debt risks, with policy easing by the People’s Bank of China (PBOC) expected to be more restrained than the US Federal Reserve or European Central Bank.
The gloomy August activity data added to signs of broad-based economic weakness, following soft trade and credit reports last week.
Retail sales missed expectations, with growth easing to 7.5 percent, from 7.6 percent in July.
Analysts had forecast a slight rebound to 7.9 percent.
Auto sales have slumped all year, prompting the statistics bureau to recently start reporting a new reading on consumption. Stripping out vehicles, retail sales rose 9.3 percent on-year.
Fixed-asset investment also disappointed. It rose 5.5 percent for the first eight months of the year from the same period in 2018, down from Jan-July’s 5.7 percent. Analysts had expected 5.6 percent.
However, the real estate sector held up in August as of the few one bright spots in the slowing economy, with property investment growing at its fastest pace in four months as sales accelerated to its highest level in over a year.
Infrastructure investment – a key driver of growth – also picked up to 4.2 percent in the first eight months this year, from 3.8 percent in January-July period.
Analysts have been puzzled by slow construction growth earlier in the year, with some citing deteriorating local government finances. China’s state planner last month announced it will ease capital requirements for infrastructure projects in the second half this year.
Other data last week showed factory deflationary pressures were also on the rise, with producer prices falling at their fastest pace in three years.
That followed a factory survey that showed activity shrank for the fourth straight month as the trade war wore on.
Earlier this month, the PBOC cut the amount of cash banks are required to hold in reserve — for the seventh time since early last year. The move was expected to release 900 billion yuan ($126.35 billion) for lending to businesses that are strapped for credit. – Reuters