China's Q3 GDP Results Anticipated Amid Interim Trade Thaw

China has insisted the U.S. should lift all additional tariffs on Chinese products as a condition for any trade deal, saying the tariff war is hurting both countries.

Author: Yaning Ying   

China's National Bureau of Statistics will report the gross domestic product (GDP) of the third quarter this Friday, as well as the retail sales of consumer goods. What is China's economic trend in the third quarter against the background of China-U.S. trade frictions? What is the growth rate of consumption and investment? This problem attracts worldwide attention.

U.S. President Donald Trump officially announced that tariffs on $60 billion worth of Chinese imports would be imposed and restrict Chinese enterprises' investment in the United States in March 2018. The incident officially launched the China-U.S. trade war. Over the next year and a half, tensions escalated until last Friday, when Trump announced a tentative trade truce. As part of the deal, the U.S. postponed a tariff increase indefinitely from 25% to 30% on $250 billion of Chinese imports that were set to go into effect this week. Trump has not yet announced whether he would postpone a new 15% levy on about $160 billion of the remaining Chinese goods, scheduled for December 15. China is hoping for another round of talks before signing the agreement, as reported by CNBC.

In this political and financial context, China will announce its third-quarter GDP results tomorrow. 

Analysts predict that China's GDP growth will slow to 6.1% in the third quarter from 6.2% in the second quarter. A senior economist for China and Hong Kong at DBS Bank, Nathan Chow, forecast that GDP growth for the fourth quarter will fall below 6%. Most forecasts put next year's growth between 5.5% and 5.9%, with the International Monetary Fund's just-released projection at 5.8%, as reported by the South China Morning Post.

Chinese analysts see a different picture. The chief economist of CITIC Securities, Jianfang Zhu, said the escalating trade war had a relatively controllable impact on the economy this year and maintained his forecast at 6.2% and 6.3% for the third quarter and the fourth quarter, respectively. However, the negative impact of the overall tariff increase may be concentrated next year, which will drag down the economic growth next year, as reported by Reuters.

What is the driving force of GDP growth? In economics, export, investment, and consumption are often regarded as the three key factors to promote GDP growth. We can fully understand the current situation of China by analyzing these three points, respectively.

With the increasingly fierce trade war between China and the United States, almost all goods exported to the United States have been subject to increased tariffs. If the economy wants sustainable development, it cannot rely on exports.

Traditionally, when China's economy shows signs of slowing down, Chinese rulers tend to stimulate growth by increasing investment. On Monday, Chinese Premier Keqiang Li said: "The downward pressure on the economy is increasing continuously, and many real economic entities are struggling amid weak domestic demand." However, Li's cabinet has so far restrained to roll out an all-out stimulus, as reported by SCMP.

Consumption has become the focus of the latest round of stimulus. Reuters quoted an expert from China's national information center as saying that downward pressure on the economy has been increasing, so expanding domestic demand to stimulate consumption has become the focus of current policies.

According to the data of the National Bureau of statistics, consumption has become the first driving force of China's economic growth for five consecutive years, and its role in promoting economic development has been continuously enhanced. In August, the total retail sales of social consumer goods increased by 7.5% year-over-year. In that sector, 15 institutions, including CICC and CITIC Securities, predicted last month an average growth rate of 7.8%.

China's domestic economy is transitioning from investment-driven to consumption-driven growth. How to maintain the overall GDP growth by promoting further consumption growth is a serious problem facing China.