Despite significant global headwinds, China's latest GDP data exceeded expectations, with the economy expanding by 5.2% in the second quarter. However, economic activity in June showed a mixed picture, raising questions about underlying momentum and future risks. CGTN Europe spoke to Marc Ostwald, Chief Economist & Global Strategist at ADM ISI, about the challenges facing China’s economy.
00:00Well, China remains ahead of its economic goal of 5% growth this year, despite some pretty significant global headwinds.
00:08The country's latest GDP data beat expectations, growing 5.2% in the second quarter, compared to the same period a year ago.
00:18It coincided with a 6.8% rise in industrial output in June, year on year,
00:24and retail sales also grew 4.8% in June, compared to the previous year, but it's well down on May's figure of 6.4%.
00:34Let's talk to Mark Oswald, Chief Economist and Global Strategist at ADM Investor Services.
00:41Mark, welcome back. Good to see you.
00:42So, GDP data beating expectations.
00:45I mean, you could say trade war. What trade war?
00:48Yes, you could, but I think it's a classic case of the headline flattering to deceive in certain senses.
01:00The strong growth in industrial production, to a certain extent, is a boost to production to try and make use of the truth between the U.S. and China.
01:11The retail sales numbers were, as you said, somewhat disappointing relative to what we saw in May.
01:18That was largely a big boost from the timing of holidays in China, above all the Labor Day holidays.
01:28I think it's the unevenness which is the biggest problem in terms of what happens going forward.
01:35You know, the traders contributed roughly one-third GDP in the first half of the year, which is a very strong contribution.
01:46But, obviously, we're all aware of the headwinds which are likely to be there going forward.
01:52Consumer confidence remains low, doesn't it? I mean, how do you fix this?
01:57It's complicated. I mean, the retail sales numbers themselves are actually being helped a lot by the subsidy program that the government has for people to replace household goods and other items around the home with new items.
02:14That's definitely helping, but it's not something necessarily which creates a sustainable recovery.
02:21Ultimately, obviously, something needs to be done with the property sector.
02:25There are moves afoot. There were announcements made, I think it was today, about a boost to replace a lot of dilapidated properties, both in rural and urban areas, and also to boost rural spend.
02:43But rural doesn't really cut it relative to urban in China, given the big migration that's been seen over the last 30 to 40 years.
02:52So, at the end of the day, the property sector woes, and property investment was down 11.2% in the most recent month, is still a key aspect of resolving some of these problems,
03:09and also to try and resolve some of the overcapacity that's there in not only old sectors, but also in some of the new sectors.
03:21This is much more problematic than 2015, when overcapacity in, say, things like steel was dealt with.
03:30Now, there's also overcapacity in solar panels, in electric vehicles.
03:35But how does one want to temper that, knowing that it's still very much a growing market, but at the same time, counter this other key factor, which is deflation.
03:48China's economy has been in deflation, as measured by the GDP deflator, now for nine consecutive quarters, combating what is called involution, i.e. the competitive race to the bottom on prices,
04:05is going to be a priority, i.e., in the second half of the year, and doubtless a lot of the extras, i think it's something in the region of 7 trillion yuan,
04:17that is available to spend on programs to boost growth, will be deployed in that direction.
04:25Washington and Beijing have until the 12th of August to renew the deal on export restrictions.
04:33What happens if they don't?
04:35I think the noises that I'm hearing from the United States, particularly Treasury Secretary Scott Besant, suggests that he's asking markets not to worry about it.
04:48I think that they will, the progress which is being made, and what one has to consider is Chinese-U.S. trade relations are extraordinarily complex.
05:02There's things that both sides need from the other side, and I emphasize need, which can't be replaced by domestic production, or at least not in the near term, and we're talking about years.
05:17So, I think those will be extended.
05:20If they weren't, obviously, there'd be a lot of trouble, just as if the EU-U.S. trade negotiations were to sour as well.
