The Chinese economy appeared to hit a few bumps in the road last month as retail, manufacturing and investment data whiffed on expectations.
But what lies in store for Beijing’s expansion through the rest of the year remains uncertain, with President Donald Trump reportedly set to pave the way for a new investigation into Chinese trade practices that could lead to tariffs or trade restrictions.
Chinese state media reported Monday that China’s industrial output ticked up 6.4 percent in July. That’s down notably from the 7.6 percent gain posted in June and shy of analysts’ expectations for gains north of 7 percent.
Retail sales, meanwhile, slowed their rate of expansion from June’s 11 percent to 10.4 percent last month. And fixed asset investment growth slowed to an 8.3 percent rate of expansion between January and July. Between January and June, such investments maintained an 8.6 percent growth rate.
Similarly, private investment growth cooled to 6.9 percent between January and July. Between January and June, that rate clocked in at 7.2 percent.
“I’m not really, really surprised the data is coming in a little weaker than expected,” Kelvin Tay, a regional chief investment officer with UBS, said Monday during an interview on CNBC’s “Street Signs.” “The economy can’t be growing at the kind of pace it was growing at in the first quarter. First-quarter growth was coming in at, what, 6.9 percent? Second-quarter growth was very strong as well. But from here on, we do expect the economy to start to actually moderate.”
Though the industrial production report was arguably the most notable for Beijing’s economy, no data point by itself raised many alarm bells among analysts. The general perception that the Chinese economy is slowing, though, could make the second half of the year complicated for a country targeting a gross domestic product growth rate of 6.5 percent for 2017.
Complicating China’s pursuit of this growth target, which still would represent its softest pace of economic growth in more than two decades, are new United Nations-backed sanctions on North Korea – a country that maintains a closer trade relationship with Beijing than with any other international partner.
Chinese trade with North Korea appeared to ramp up in recent months, despite efforts from the Trump administration to convince Chinese officials to play economic hardball with Pyongyang to rein in the Hermit Kingdom’s nuclear ambitions and periodic missile testing. Still, Chinese officials on Monday moved to implement the new U.N. sanctions, announcing they would ban imports of natural resources and raw materials like iron ore, lead and coal from North Korea.
China has historically been a manufacturing-first country, though it is slowly transitioning to a more consumer-dominated system similar to what’s on display in Western countries like the U.S. Trade pressures also have forced Beijing to look not only at restructuring its trade relationship with North Korea, but also at scaling back its production of steel, metals and manufactured products that some international trade partners say are unfairly flooding the market and eating away at other companies’ market shares.
Trump, for example, has hit out at Chinese steel, saying that its mass production has allowed the products to be sold cheaply around the world – at times to the detriment of America’s own steel producers.
Reports also have surfaced in recent days that Trump plans to pursue a trade probe of China, and he is expected Monday to take action requesting that the office of U.S. Trade Representative Robert Lighthizer weigh whether to conduct a probe into alleged Chinese theft of U.S. intellectual property.
The move would represent one of Trump’s first substantive shots at Chinese trade practices since moving into the White House. The president on the campaign trail vowed to label China a currency manipulator and to crack down on what he described as an unfair trade relationship. But after taking a seat in the Oval Office, Trump appeared to strike a more cooperative tone with Beijing, opening a symbolic 100-day trade dialogue with China and urging the country to help out with reining in North Korea.
Though the exact details of Trump’s probe to this point remain unclear, he tweeted Monday morning that he was “heading to Washington” and that he had “much work to do” with a “focus on trade and military.”
“The Obstructionist Democrats have given us (or not fixed) some of the worst trade deals in World History,” Trump tweeted. “I am changing that fast!”
Exactly how China would respond to a trade investigation also remains unclear, though Chinese state media in recent days have criticized Trump’s characterization of Chinese trade practices.
One Sunday piece cited analysts in saying the president’s “threat to investigate China’s trade practices is ‘politically expedient,'” and “the unilateral move will harm mutually beneficial China-U.S. trade ties and ultimately hurt the American consumers.”
Another piece published Monday by a state-owned publication warned that “politicizing trade will only acerbate [America’s] economic woes and poison the overall China-U.S. relationship.”
“While Trump’s prior identity as a businessman may explain his transactional propensity, the deal he seeks demands the impossible of Beijing,” the piece said. “It is unfair for him to consign the burden of dissuading Pyongyang on Beijing; likewise to accuse Beijing of doing ‘little’ or ‘nothing.'”
By Andrew Soergel