Coal is stored at the coal terminal of Lianyungang Port in Lianyungang, in China’s eastern Jiangsu province. China’s economy expanded by more than 5 percent in the second quarter. (Photo by AFP)
BEIJING, China – China’s economy expanded more than five percent in the second quarter, official data showed Tuesday, buoyed by strong exports but analysts warned that more work was needed to address sluggish consumer demand.
The figures offer a rare bit of good news for the country’s leadership as it fights a multi-front battle to kickstart growth — a challenge made all the more difficult by Donald Trump’s tariff war.
But the knock-on effects of the trade turmoil abroad and persistent sluggish consumption mean the economy could slump in the second half of year, analysts warned.
READ: China exports beat forecasts in June after US tariff truce
The US president has imposed tolls on China and most other major trading partners since returning to office in January, threatening Beijing’s exports just as it becomes more reliant on them to stimulate economic activity.
The two superpowers have sought to de-escalate their row after reaching a framework for a deal at talks in London last month, but observers warn of lingering uncertainty.
On Tuesday, Beijing’s National Bureau of Statistics (NBS) said the Chinese economy grew 5.2 percent from April to June, matching a prediction by an AFP survey of analysts and topping an official growth goal for the year set by the government.
But it marked a slowdown from the 5.4 percent seen in the first quarter, which was boosted by exporters rushing to shift goods ahead of swinging US tariffs kicking in.
“The national economy withstood pressure and made steady improvement despite challenges,” NBS deputy director Sheng Laiyun told a news conference.
“Production and demand grew steadily, employment was generally stable, household income continued to increase, new growth drivers witnessed robust development and high-quality development made new strides,” he said.
Markets were mixed in response — after a strong start to the day, Hong Kong pared an early rally while Shanghai dipped into negative territory.
“The figures probably still overstate the strength of growth,” Zichun Huang, China Economist at Capital Economics, said in a note.
“With exports set to slow and the tailwind from fiscal support on course to fade, growth is likely to slow further during the second half of this year,” Huang added.
Retail sales rose 4.8 percent on-year last month, below a forecast in a Bloomberg survey of economists, suggesting efforts to kickstart consumption have fallen flat.
The weak readings come as Beijing battles to shift towards a growth model propelled more by domestic demand than the traditional key drivers of infrastructure investment, manufacturing and exports.
Factory output, meanwhile, gained 6.8 percent, higher than the estimate — reflecting continued high demand for Chinese exports that has boosted growth.
‘More deflation’
But analysts warn that strong exports could be driving deflationary pressures and further dampening already sluggish consumer demand.
“Recent efforts to boost spending, such as the broadening of the consumer goods trade-in scheme earlier this year, did temporarily lift retail sales,” said Sarah Tan, an economist at Moody’s Analytics.
“However, this support proved unsustainable, with funding reportedly drying up in several provinces. The scheme’s limitations highlight the need for policymakers to address the deeper structural challenges behind consumer caution.”
Data last week showed consumer prices edged up in June, barely snapping a four-month deflationary dip, but factory gate prices dropped at their fastest clip in nearly two years.
“The economy posted a solid first half, supported by resilient exports, though this momentum is contributing to deepening deflationary trends,” Louise Loo, Head of Asia Economics at Oxford Economics, said in a note.
“The cost of strong exports is more deflation,” she said.
Disagreements also persist between Beijing and Washington, despite the framework agreement reached last month.
“We are resolved to handle our own affairs well,” The NBS’s Sheng said Tuesday, noting “high tariffs” and “pressure in the external environment”.
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Yue Su, principal economist for China at the Economist Intelligence Unit, told AFP that Tuesday’s data demonstrated “notable resilience”, warning that “trade frontloading will overdraw demand for the second half”.
