This
article just in from The Wall Street Journal
BEIJING—China says domestic spending by its own citizens will
minimize the economic damage of its trade fight with the U.S. Yet demand from
consumers and factories is looking shaky.
Even before trade tensions ratcheted
up in the past week or so, China was facing headwinds as it worked to expand
its middle class and make the world’s No. 2 economy more consumer-driven. Economic
figures released Wednesday and in recent weeks show slowing activity by
consumers, as well as factories, and add to doubts about China’s domestic
playbook for the protracted trade dispute.
A 7.2% rise in retail sales last month from April 2018 marked a
substantial 1.5-percentage-point reduction from the year-over-year rate in
March. April’s pace was last seen when China ordered people to stay home during
the SARS pneumonia more than a decade and a half ago. Some economists had
predicted April sales would grow 8.8%. Now they expect the government to expand
the stimulus measures employed last year and at the start of this one.
Since President Trump dialed up trade tension last week
with new tariffs and threats of more, Beijing
retaliated with a set of punitive levies and said, via
government media, it wouldn’t be cowed because exports matter less than ever to
an economy three-quarters powered by consumption. The idea is China’s 1.4
billion citizens, each representing nearly $10,000 in gross domestic product,
will “hedge the impact of Sino-U.S. trade frictions,” as China Central
Television put it in a commentary.
Liu Aihua, a spokeswoman for the National Bureau of Statistics,
echoed that theme during a presentation of the new data on Wednesday,
describing China’s nearly 400-million-strong middle class as a “new driver”
whose employment prospects will brighten as services develop.
“A trend toward greater consumption is apparent,” Ms. Liu said.
Businesspeople say Chinese consumer sentiment had already
been damaged by earlier phases of the trade dispute, and now Sino-U.S.
divisions appear to be hardening. Damaged confidence has a lot to do with why,
for instance, Chinese passenger-car
sales fell in 2018 for the first time since the country became
an important car market, a turn with knock-on effects for leather, robot and
chemical makers.
“The real issue is confidence,” said Yao Yang, director of
Peking University’s China Center for Economic Research.
The hit to sentiment adds to anxiety in an already cooling
economy as the government deals with heavily indebted companies and investors
reduce exposure to risks.
Other data on factory activity and investment released Wednesday
likewise pointed to weakening performance. It is a turnabout from the economist
optimism of a month ago when tax cuts, easier access to financing and other
government measures appeared to position the economy to easily attain Beijing’s
6% to 6.5% GDP growth target this year.
Industrial output gained 5.4% in April from a year earlier,
slowing from an 8.5% year-over-year increase in March, while investment in
fixed assets such as infrastructure and property during the first four months
of this year rose 6.1% from a year ago, slower than the 6.3% pace this year
through March.
Nomura economists called the latest performance a “double dip.”
Some retail-focused companies say their China business is going
gangbusters. IMAX Corp.’s chief executive recently told investors its
box-office revenues rose 34% in the first quarter.
“It’s very exciting to see what’s possible in China,”
Hasbro Inc. Chief Executive Brian Goldner recently told analysts, explaining
that the toy-and-media company has benefited from tie-ins with online giantTencent Holdings Ltd. and broadcaster CCTV.
Unless the U.S. and China find an offramp, the tit-for-tat
tariffs set in the past week now threaten to add surcharges up to 25% on a
substantial chunk of goods traded between the two countries, whose trade
totaled $660 billion last year. Mr. Trump says tariffs are an effective way to
pressure Beijing to complete a trade deal, while China’s leadership says it has
no choice but to retaliate.
The actions weakened China’s
currency and stock market, while some economists are
forecasting a million or more possible job losses.
Chinese households also face other challenges. Personal debt,
mostly attributable to mortgages on the country’s pricey apartments, has
crimped spending. While Chinese incomes have risen quickly in recent years,
Organization for Economic Cooperation and Development figures show middle-class
families in China still only earn a fifth of U.S. levels.
Also, consumer prices are edging higher, up 2.5% in April
from the same month in 2018, though official figures so far show limited impact from a
virus that is sharply cutting into the country’s important pork
supply.
Elsewhere, empty malls around China point to rising difficulties
for retailers, which appear to be about more than the country’s rapid shift to
online consumer spending. Clothing sales fell 1.1% in April.
French hypermarket group Carrefour SA, one of the
biggest global retailers in China, says its sales tumbled about 10% last year
to 3.65 billion euros and that it has explored selling a stake to Tencent.
Neither Carrefour nor Tencent responded to a request for comment.
Forever 21 Inc., a Los Angeles fast-fashion retailer that jumped
into China seven years ago, is now exiting, according to a Chinese-language
notice on its websites. Executives didn’t respond to requests for comment.
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