Wednesday, August 15News That Matters

China Fends Off Trade Trouble With 6.8% Growth


A worker works at a furnace at a steel plant in Dalian, China, earlier this month.
A worker works at a furnace at a steel plant in Dalian, China, earlier this month.
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Reuters
By

BEIJING—China’s economy expanded at a faster-than-expected 6.8% in the first quarter, buoyed by robust sales at home and abroad and ramped-up industrial production.

The pace of growth matched the previous quarter’s rate. It bucked some investors’ and analysts’ expectations that a slowdown would take hold amid a government debt cleanup that has begun to crimp investment in property, infrastructure and factories. Retail sales held up particularly well, up 9.8% for the quarter compared with the same period the previous year.

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Unexpectedly strong exports, along with the resilient retail sales and factory output, helped lift growth. The steady performance suggests that simmering trade tensions between Washington and Beijing has so far had little impact on China, the world’s second-largest economy.

“China’s economy is off to a good start,” Xing Zhihong, a spokesman at the National Bureau of Statistics, said at a press briefing Tuesday morning.

But there are signs that shipments overseas, home sales and industrial output—all cornerstones of China’s economy— are starting to weaken. Chinese factories are starting to produce fewer goods for foreign markets.

Economists say that slowdown is spurred by the anticipation of higher barriers to enter the U.S. market, and a softening of global demand after a year during which the world’s major economies grew in rare harmony. Such synchronized expansions are “coming to an end,” according to a new report by the Washington-based Institute of International Finance.

Meanwhile, a sustained campaign by Beijing to curb rampant borrowing is biting into big-ticket investments, especially those by local governments and state-owned companies. The northwestern region of Xinjiang this month halted all government-funded industrial and infrastructure construction begun since January 2017, as officials launched an investigation into whether those projects have sufficient financing.

“We would rather have a slower rate of growth than more debts,” said a notice issued by the region’s economic-planning agency.

Such efforts, together with the anticipation of greater headwinds overseas, has led many economists and investors to forecast some deceleration in economic expansion during the rest of the year. A marked slowdown, they said, could weaken the leadership’s resolve to sustain the debt cleanup and an initiative to close unneeded smokestack factories—efforts that squeeze near-term growth.

“There must be a balance between controlling risks and maintaining growth,” said Zhu Baoliang, chief economist at the State Information Center, a think tank affiliated with the country’s top economic planning agency. To spur growth, Mr. Zhu said, Beijing should lower reserve requirements for banks to unleash more funds for loans.

Economists and China analysts expect a switch in tack by the government should growth dip below 6.5%, the target the country’s leadership set for this year. A number of indicators for March—from exports and industrial output to fixed-asset investment—showed weakening momentum for expansion in the coming months.

Its trade surplus with the U.S. continued to widen in the first quarter. But overall overseas shipments dropped last month, causing China to record a rare trade deficit with the rest of the world. Meanwhile, industrial production grew just 6% in March, compared with 7.2% in the first two months of the year, and 6.8% overall for the quarter. Big-ticket investment grew 7.5% in the first quarter, below the 7.7% expected by economists polled by The Wall Street Journal.

Government efforts to prevent speculative home buying also are starting to hit residential sales, which slowed to 11.4% in the first quarter, from 15.7% in the first two months of 2018.

—Grace Zhu and Liyan Qi contributed to this article.

Write to Lingling Wei at lingling.wei@wsj.com

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