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Economy

Trade war chokes China as growth hits new low of 6%

Premier tells provincial leaders to enhance their 'sense of urgency'

Workers make Chinese flags at a factory in Zhejiang Province. A wide range of industries are under pressure from the U.S.-China trade war.   © Reuters

BEIJING -- China's protracted trade war with the U.S. is having a widespread effect on its economy, with the latest economic data casting a shadow over Beijing's plan to double gross domestic product from 2010 to 2020.

Business owners in Shaoxing, a Chinese city home to many textile factories, are under heavy pressure from U.S. tariffs enacted in September 2018.

"There wasn't much of an impact last year, but this year has been terrible," said Zhang Liang, who runs a trading company. "Our sales dropped 60%."

"Many business owners I know have moved their factories to Vietnam," said textile company owner Zhuang Xuyan.

China's growth rate declined for a second consecutive quarter to 6% for the July-September period, down 0.8 point -- a severe drop for China -- since January-March last year. In order to double GDP by 2020, the country needs to average 6.2% this year and the next.

Chinese Premier Li Keqiang, who is responsible for economic issues, told provincial leaders on Monday to enhance their "sense of urgency." Stable growth was more important than anything else, he said.

A closer look at the data reveals further warning signs. Secondary industries like manufacturing and construction grew 5.2% in July-September, down 0.4 point from the previous quarter to the slowest rate since comparable data has been tracked in 1992.

Investment also increased by a record low rate of 2.5% in the January-September period.

"China's real economy faces considerable challenges," National Statistics Bureau spokesperson Mao Shenyong said.

The auto and electronics industries, which are both crucial to China's industrial sector, have suffered particularly. Both auto sales and production have fallen on the year for 15 straight months through September, and 12 of China's 15 big automakers reported a drop in unit sales for January-September.

Meanwhile, mobile phone shipments fell on the year for the fourth straight month in September. Smartphone production fell for the third month. Imports from South Korea, an important link in the supply chain for electronics, plunged 27% on the year in September.

High tariffs by the U.S. have also significantly dented Chinese exports to the country. The figure fell 22% on the year in September, the steepest decline since 2009 following the global financial crisis.

The retail sector is also suffering as consumer spending slows. China's 5,000 big retailers tracked by the Commerce Ministry logged a 2% increase in sales in July-September. The figure falls into negative territory after taking inflation into account.

Casino revenues in Macao, which is an indicator for spending among the wealthy, fell 4% last quarter.

Still, the government is reluctant to launch major stimulus measures. China's total debt reached 254% of GDP at the end of 2018. Regional governments in particular have little cash to spend on new projects.

There are some bright signs on the horizon. Monthly industrial production and retail sales both improved in September, while infrastructure investment rose for the second straight month.

"There are positive factors for the October-December quarter, and we can guarantee economic stability," Mao said, offering a bullish outlook for the coming months.

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