China's 2Q GDP Growth Was Hurt by Trade But Boosted by Domestic Consumption
China's second-quarter GDP growth suggests that the country's economy is facing pressure from the trade war, as investments and exports slowed down materially. Meanwhile, domestic consumption finally showed some signs of recovery.
China's second-quarter GDP growth of 6.2% came in lower than the first-quarter GDP growth of 6.4% and was the slowest in almost 30 years.
The slowdown suggests that the country's economy is still facing pressure from the US-China trade war, given that exports in the first half of 2019 dropped by 1.3% YoY and imports contracted 7.3% from the same period last year. According to the Census Bureau of the US Department of Commerce, Americans are buying more from Vietnam and South Korea to avoid paying more for increased tariffs. Even though the two countries had just announced a truce to their escalating tariff war at the recent G20 summit, investors and corporations are skeptical the world's two largest economies will reach an agreement on trade issues and PE/VC investment activities slowed down significantly over the same period.
The good news is that domestic consumption finally showed some signs of recovery: overall consumption was up by in 8.4% in the first half of the year and advanced 9.8% YoY in June. Both figures exceeded the overall GDP growth and were mainly driven by revived auto and cosmetics sales.
Nevertheless, the rebound in monthly data still faces the question of sustainability. While the government has been trying to shore up the market for months by cutting taxes and rolling out favorable regulations to small businesses, we believe the PBoC, China' central bank, is likely to adopt more monetary easing moves such as lowering interest rates or the reserve requirement ratio to further stimulate the growth later in the second half of this year.