Heightened trade tensions with the U.S. are beginning to hit China’s growth.
The International Monetary Fund (IMF) lowered its 2019 growth forecast for the world’s second-largest economy to 6.2% from 6.3% on Wednesday, after the conclusion of the organization’s visit to China over roughly the last two weeks.
“The trade tensions have had an impact, significant, but in our view, so far contained,” Kenneth Kang, deputy director of the Asia-Pacific Department at the IMF and leader of the visiting team, told CNBC in an interview Wednesday.
“The renewed trade tensions are a significant source of uncertainty and a downside risk to our outlook … But I think we need to wait a few more months,” he said.
The IMF expects China’s growth to slow to 6% next year, and to 5.5% by 2024.
Negotiations between Beijing and President Donald Trump’s administration took a turn for the worse in early May with the increase of tariffs on $200 billion worth of Chinese goods exported to the U.S., and an effective ban on American companies doing business with Chinese telecom giant Huawei. Beijing responded with tariffs on $60 billion worth of U.S. goods, the announcement of an “unreliable entities list” and a far tougher stance against U.S. requests.
U.S. Treasury Secretary Steven Mnuchin and People’s Bank of China Governor Yi Gang are expected to meet this weekend, but there is still no confirmation on whether Trump and Chinese President Xi Jinping will hold talks at the G-20 meeting in Japan at the end of the month to seal even a temporary deal.
The pressure from the U.S. on trade comes as China already faces slowing growth. In the last year, authorities have announced a slew of measures to improve financing to privately-run companies — which account for most of the jobs and economic growth — and tax cuts in order to boost consumption.
So far, those efforts have paid off.
Kang noted that “employment has held up” amid the heightened trade tensions. “We would encourage the authorities to rely more on market forces rather than on administrative targets to improve the efficiency, to make this lending sustainable,” he said.
Private survey data released this week indicated that China’s economy is just holding above the 50 level that indicates expansion. The Caixin/Markit factory Purchasing Managers’ Index for May was 50.2, unchanged from April. However, the services index fell to 52.7 in May, the lowest since February, according to Reuters.
China’s official (although frequently questioned) gross domestic product grew by 6.4% in the first quarter, unchanged from the prior quarter but down from 6.8% a year ago.