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Economy

China's economy leans on exports as consumer spending slows

Weak real estate market hurts consumption while US trade frictions mount

Chinese exports are increasingly vital to supporting the nation's economy.   © Reuters

BEIJING -- Slowing personal consumption in China during recent months leaves the nation's economy reliant on exports, a worrying prospect as trade frictions with the U.S. heat up.

China's retail sales of consumer goods rose 9.7% on the year in the January-February period, figures published Wednesday show. Coming on the heels of a 9.4% increase in December, sales growth remained in the single digits in consecutive reporting periods for the first time in about 15 years.

These retail sales typically have grown at least 10% since 2004 barring special circumstances. The January-February statistics are combined due to Lunar New Year.

Other indicators signal sluggish Chinese consumption as well. Spending during the Lunar New Year holiday grew at the slowest pace since such measurements began in 2005. Personal expenditures rose 5.4% in real terms last year, 1.4 percentage points lower than in 2016. Smartphone sales declined on the year for the first time in 2017.

Weak real estate sales contribute to the slowdown in consumption. Retail sales of construction material and furniture were poor in January-February as the total area of real estate sold rose just 4.1% during that period. The continuing downtrend in growth comes amid tighter controls on condominium buying intended to tame financial risks.

Mortgages also have become a heavy burden on consumption as condo prices soar. Personal debt was the equivalent of 47% of China's gross domestic product at the end of June, according to the Bank for International Settlements, an increase of 18 percentage points in five years.

On the bright side, investment in fixed assets rose 7.9% on the year in January-February, higher than the full-year growth figure for 2017, but this was not enough to power the whole economy given inflation.

The real growth engine for China has been exports, which jumped 24% on the year in January-February after climbing 11% in December. The contribution by foreign demand to China's GDP growth has been around zero or less since 2015, but hit 2 percentage points in the quarter ended December -- likely the highest since the 2008 financial crisis. China's real growth rate of 6.8% in the October-December period would have been short of 5% without help from exports.

This help is a major reason U.S. trade frictions leave China so concerned. Beijing separately dispatched two politicians from the 25-member Politburo to Washington last month and lowered anti-dumping tariffs on U.S. poultry at the end of February, concluding a long battle between the two countries.

China has kept a low profile despite being targeted by the U.S. with trade-related measures, partly due to the growing impact a trade war would have on an economy reliant on foreign demand. Commerce Minister Zhong Shan told reporters Sunday that China does not want a trade war and will not start one.

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