Slowdown in China’s economy, weak demand, US tensions are increasing risk –

Slowdown in China’s economy, weak demand, US tensions are increasing risk

BEIJING (Reuters) – China’s economy returned to growth in the second quarter after a deep recession at the beginning of the year, but unexpected weakness in domestic consumption underscored the need for more policy support to boost recovery after the shock of the coronovirus crisis did.

The Asian stock market and the Chinese yuan fell CNY = CFXS, partly reflecting broader challenges facing the world’s second-largest economy as it bears a double whammy of the epidemic and tensions with the United States over trade, technology and geopolitics has increased.

Gross domestic product (GDP) has increased by 3.2% in the second quarter from a year earlier, the National Bureau of Statistics said on Thursday, with the lockdown measure being eliminated as analysts forecast more than 2.5% in a Reuters poll and policy. The manufacturers increased the excitement to counter the virus-led recession.

The boom was still the weakest expansion on record, and was the worst recession in the early 1990s, after falling 6.8% in the first quarter.

Betty Wang, senior economist at ANZ Bank, said, “As we have previously highlighted, policy support is needed even if the pace of growth is to recover.”

“The possibility of a resurgence in local COVID-19 cases, global economic uncertainty and deteriorating Sino-US relations mitigate all risks to China’s H2 growth outlook,” Wang said.

Those risks were partly reflected in separate retail data showing that Chinese consumers were keeping their wallets tightly locked, pointing to a boring approach at home and abroad, as many Countries continue to grapple with the COVID-19 epidemic – leading to increased infections in the United States. .

Although June indicators and GDP numbers are largely beating expectations, Rodrigo Catril, a foreign exchange strategist at the NAB in Sydney, said he also revealed that “China is lagging behind in terms of recovery story.” ”

He said, ‘This is a story of government-led recovery, which is very much focused on the industrial sector. The consumer is very cautious. This vigilance is something that the market is looking at in the context of countries where the consumer plays a big role, so it is clearly relevant to the US as well. ”

Retail sales were down by 1.8% in June – the fifth straight month of decline and much worse than the projected 0.3% growth since the 2.8% drop in May.

Domestic job losses have been a concern for consumers, as many businesses struggled to stay in the black.

Wanda Film, for example, China’s largest cinema chain operator, which owns more than 600 theaters, on Tuesday warned of a net loss of 1.5–1.6 billion yuan ($ 214–228 million) in the first half, coronovirus. Had closed theaters almost the entire period.

US tensions, structural issues

In the first half of the year, the economy contracted 1.6% from a year earlier, underscoring the widespread impact of the virus that emerged for the first time in China late last year and caused more than 583,000 deaths worldwide.

On July 16, 2020, a worker wearing a face mask set up a line at a square in Beijing’s Financial Street area following an outbreak of coronovirus disease (COVID-19). REUTERS / Tingshu Wang

Rising tensions with the United States and the epidemic have linked the structural issues that China has been facing for years, including demographic changes, over-investment, low industrial productivity, and high debt levels.

On a quarter-on-quarter basis, GDP jumped 11.5% in April-June, an increase of 9.6% compared to what NBS said and a 10% drop in the previous quarter.

The government is expected to offer more support on one of the measures already announced, including boosting fiscal expenditure, tax relief and reductions in lending rates and reserve requirements of banks.

But debt concerns have kept a lease on China’s stimulus tap. The unveiling of net fiscal stimulus exceeded just 4 trillion yuan ($ 571.76 billion) this year, much more restrained than spending in other major economies, including the United States and Japan.

The Institute of International Finance estimates that China’s total debt rose to 317% of GDP in the first quarter of 2020, up from 300% at the end of 2019, and the largest quarterly increase on record.

The industrial economy offered some hope for the nation as it tries to regain its territory, with production up 4.4% in June from a year earlier, the third straight month of production in the vast region, data reveal May, up by 4.4% growth in May.

Fixed Asset Investment fell from the same period of 2019 to the expectation of at least 3.1% in the first half, with a 6.3% drop in the first five months, while real estate investment growth also rose to 8.5% in June, thanks to credit Promote.

While the International Monetary Fund estimates China to expand by 1.0% for the full year, the only major economy to report growth in 2020, many analysts cautioned about the outlook.

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Oshimasa Maruyama, chief market economist at SMBC Nikko Securities in Tokyo, said, “Domestic demand will outpace China’s recovery, but given the potential for a large round of coronovirus infections abroad, external demand may be at risk.”

($ 1 = 6.9959 Chinese Yuan Renminbi)

Reporting by Kevin Yao, additional reporting by Stella Qiu and Yawen Chen; Editing by Sri Navratnam

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