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Economy

Signs of slowdown belie China's brisk Q1 growth

Trade disputes with US and slack infrastructure investment loom

Several office towers are under construction in China's Hainan Province in January. Sluggish property sales in the country are expected to start impacting investment in about six months.   © AP

BEIJING -- Despite strong growth in the first quarter of 2018, the Chinese economy faces greater uncertainties amid stagnant property sales and the rising threat of a trade war with the U.S.

China's real gross domestic product grew 6.8% on the year in the January-March period, the National Bureau of Statistics announced Tuesday. The government is aiming for a 6.5% increase over the whole year.

Consumer spending was the main driver of growth in the first three months of the year. Spending on movies and other services increased, and online retail sales climbed 35% on the year. Consumer spending contributed 5.3 points to China's growth for the quarter, more than double the 2.1-point lift from investments.

"The economy is off to a good start," said National Bureau of Statistics spokesperson Xing Zhihong at a news conference.

But several indicators suggest China is headed for a slowdown. Investment in infrastructure advanced 13% on the year in January-March, down from a 23.5% increase in the same quarter in 2017. Regional governments spent more aggressively last year ahead of the twice-in-a-decade Communist Party congress that October.

The total floor space sold in commercial buildings gained just 3.6% on the year amid tighter financial regulations, compared with the 19.5% increase in the same quarter last year. Authorities are limiting condo sales as well, and the average mortgage rate has climbed by nearly a full percentage point to 5.4% between the end of 2016 and this past February.

Investment in real estate development expanded 10.4% on the year in January-March. But listless property sales are expected to start impacting investment in about six months.

Overseas demand is also a concern. China's exports grew 14% in dollar terms on the year last quarter, but imports jumped even faster at 19%. The roughly 20% decrease to the country's trade surplus resulted in a 0.6-point hit to China's growth rate for January-March. China actually logged a trade deficit for the month of March alone.

Chinese President Xi Jinping claims he wants to boost imports, and China bought 11 times more crude oil and four times more natural gas from the U.S. in the first two months of the year. Meanwhile, Washington continues to demand that China reduce its trade surplus with the U.S. by $100 billion. A full-blown trade war would squeeze China's exports and weigh down its economy.

In 2017, net exports contributed 0.6 percentage point -- the highest since the 2008 financial crisis -- to China's growth rate. A reduction in net exports could push annual growth to under 6.5%, said Li Xunlei, chief economist at Zhongtai Securities.

Greater trade frictions between the world's two largest economies would have repercussions for domestic demand in China. Considering that lending and other financial restrictions are already dampening investment in the country, tensions with the U.S. are becoming a greater risk to the Chinese economy.

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