Is China’s slow growth a cause for worry?

China's economic growth slowed to its lowest level in a decade in the quarter ending in June, putting further pressure on its leaders as they fight a tariff war with Washington.

The world's second-largest economy grew at 6.2 percent, down on the 6.4 percent it grew on the same period last year, government data showed on Monday. 

The slowdown represents the weakest growth since the first quarter of 2009 - in the aftermath of the global financial crisis.

The 6.2 percent figure released by the National Bureau of Statistics was in line with a survey of analysts commissioned by AFP and down from a 6.4 percent expansion in the first quarter. 

The GDP figures are within the government's target range of 6.0-6.5 percent for the whole year, down from the 6.6 percent growth China posted in 2018.

So why has China’s economy started to slow down?

 The Economist says that China's’ growth slowing down was inevitable after years of growth at around 10 percent. The bigger the economy gets, the harder it is to keep growing at the same pace. Growth of seven percent this year would generate more output than 14 percent growth approximately did in 2007. 

 Is an ageing population playing a part?

Experts say the Chinese market is not able to provide traditional industries with the necessary amount of workers needed to sustain high economic development. 

According to China Daily, after peaking at 925 million in 2011, the working age population (aged between the 15 and 59) has started to fall. In 2012, the working age fell by 3.45 million, in 2013 it dropped by 2.44 million, in 2014 it fell by 3.71 million, and in 2015 it fell by 4.87 million.

The working population is expected to drop from 830 million today to 700 million in 2050, at a speed of up to 7.6 million annually, according to the government.

Is the one-child policy to blame for its economic slowdown?

In a historic decision in 2015, China ended its one-child policy and allowed married couples to have two children for the first time in 30 years. 

The one-child policy produced a massive demographic dividend by creating an expanded working-age population relative to the total population, according to data from China's National Bureau of Statistics. The net effect was a growing and increasingly productive labour force.

However the benefits of the one -child policy began to peter out and in 2012, the ratio of working-age people to total population peaked. This was because the economic benefits of the policy ironically led to a better standard of living and people therefore living for longer.

Paying back the debt 

The Economist reports that for the past few years, China has been on a borrowing binge, and that the total debt (including government, household, and corporate) has risen to about 250 percent of GDP, up 100 percentage points since 2008.

 This debt helped China to strengthen its economy through the global financial crisis but also put the country into a heavy repayment burden. Paying back the credit can take years. Given that China’s financial system is mostly closed, it has little risk of an acute crisis, but the other side of the coin is that it might need even longer to clean up its bad debts.

Chinese exports grew despite US tariffs 

Last month, Reuters reported that China’s exports unexpectedly returned to growth in May despite higher US tariffs, but imports fell to the lowest level in nearly three years in a further sign of weak domestic demand that could prompt Beijing to step up stimulus measures.

 Beijing’s May exports rose 1.1 percent from a year earlier, compared with market expectations for a modest decline, customs data showed.

 Although China is not as dependent on exports as in the past, they still account for nearly a fifth of its gross domestic product.

 Damage from the trade war along with a broader softening in global demand will make 2019 the worst year for trade since the financial crisis a decade ago, with only 0.2 percent growth, according to economists at ING.

 China’s trade surplus with the United States, a major irritant for Washington, widened to a four-month high of $26.89 billion in May, from $21.01 billion in April, Monday’s data showed.

 Exports to the US fell at a more moderate pace of 4.2 percent after dropping 13.2 percent in April, while China’s imports of US goods declined 26.8 percent from a year earlier.

 Trade tensions between Washington and Beijing escalated sharply early this year,  after the Trump administration accused China of having “reneged” on promises to make structural changes to its economic practices.

 Trump on May 10 slapped higher tariffs of up to 25 percent on $200 billion of Chinese goods and then took steps to levy duties on all remaining $300 billion Chinese imports. Beijing retaliated with tariff hikes on US goods.

 Trump has said he expects to hold a meeting with Chinese President Xi Jinping at a G20 leaders’ summit late this month, but analysts such as Capital Economics believe the chances of a lasting trade deal are receding as both sides appear to be digging in for a long battle.

 'Economic realities' 

 However, the trade war with the US has hit China's economy, compounding a global slowdown.

 "The China GDP data was very much in line with consensus confirming the markets’ view that the economy continues to slow, and while GDP touched a 27-year low in Q2, the on consensus print does lessen the market fears that China's economy is headed for a hard landing," said Stephen Innes, Managing Partner at Vanguard Markets.

 "As such risk assets will respond favourably but it's hard to escape the economic realities that the US-China trade war is having on global economies."

Altogether the two economic giants have slapped each other with punitive tariffs covering more than $360 billion in two-way trade, damaging manufacturers on both sides of the Pacific.