China responds to sharp fluctuations in stock market

Ivan Schwartz
October 21, 2018

China's third-quarter GDP data on Friday is expected to show growth slipped to its weakest pace since the global financial crisis, as domestic demand faltered and exporters started to feel the pinch from a bitter Sino-US trade dispute.

The growth figure for the July to September quarter was 6.5% from a year earlier, the National Bureau of Statistics said.

Bloomberg News cites trade tensions and a down period for the Chinese stock market as having significant impacts.

The economy has expanded in a reasonable range and maintained a trend of overall stability and steady progress, China's statistical authority said, while acknowledging that the country faces more external challenges and rising downward pressure. This, however, could also hurt the Chinese economy, as soybeans are needed for processed food products and for animal feed, among other uses, and increased soybean prices would contribute to higher commodity prices in China.

Infrastructure investment rose 3.3 per cent year-on-year for Jan-Sept, slower than 4.2 per cent growth in the first eight months of the year.

Retail sales, factory output and investment in factories and equipment - bigger drivers of growth than exports - all weakened in the latest quarter.

In the first three quarters of the year, GDP growth stood at 6.7 per cent, ensuring Beijing will achieve growth target of "around 6.5 per cent" for this year.

The Trump administration plans to raise its tariffs on $200 billion of Chinese goods from 10% to 25% at the end of the year.

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The country will step up efforts to support the development of private companies by raising financial accessibility and relieving their burdens, and to deepen state-owned enterprise (SOE) reform, especially mixed-ownership reform, so as to enhance SOE competitiveness, Liu said.

Shanghai stocks, meanwhile, have dropped over 20 percent since March and are hovering at their lowest level in almost four years.

The third-quarter figures are the first to be released by Beijing since US President Donald Trump hit China with two sets of tariffs, targeting $250bn (£192bn) worth of Chinese goods.

"Chinese policymakers are faced with a tough proposition: Keep pumping liquidity into the system for limited dividend and growing long-term imbalances or accept much slower growth and refocus on deleveraging", said Sue Trinh, head of Asia strategy at RBC.

The Shanghai Composite index has now lost more than 30% in 2018, and Capital Economics says it will probably fall further.

Last week the People's Bank of China (PBOC) announced the fourth reserve requirement ratio (RRR) cut this year, stepping up moves to lower financing costs.

Economists warn that a protracted dispute will eventually stunt growth not just in the US and China but across the broader global economy. Unless loans are repaid or more collateral is added, the stocks can be liquidated by debtors, further weighing on already weak sentiment, the Post said.

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