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Chinese economy slows to lowest growth rate in 28 years

Customers shop at a luxury shop in Beijing on Jan. 21. (Nicolas Asfouri/AFP/Getty Images)

BEIJING — The Chinese economy grew last year at its slowest rate since 1990, adding to the urgency for President Xi Jinping to reach a trade deal with the United States.

Although the trade war is not the main reason for last year’s slowdown, it is not helping.

“The economy is a much bigger problem for Xi Jinping than the trade war. The last thing he wants is a bunch of angry people protesting because they’ve lost their jobs,” said Andrew Collier, managing director of Orient Capital Research, a Hong Kong-based consultancy.

“Slowing economic growth is putting pressure on him to solve as many problems as he can, and the trade war will be top of his list,” Collier said.

Growth in the world’s second largest economy decelerated from 6.8 percent in 2017 to 6.6 percent last year, according to the National Bureau of Statistics. The decline is the result of cooling demand both at home and abroad.

The slowdown in the final quarter of the year was not quite as bad as many economists were expecting, reaching 6.4 percent.

But many economists take official Chinese figures with a large pinch of salt. Using a range of data to come up with a more reliable figure, Julian Evans-Pritchard, a China analyst at the Capital Economics consultancy, said that the growth rate probably slowed to 5.3 percent in last three months of the year.

Regardless of the number, the direction is clear, and the slowdown is being felt nationwide.

Retail sales, industrial production and property sales all slowed in the final quarter of last year. Car sales were particularly poor, recording the first annual drop in more than two decades, and the unemployment rate is climbing. 

From tech companies to factories, workers are being laid off. This trend could worsen after the Chinese New Year holiday at the beginning of next month, when millions of migrant workers will return to their hometowns — and may not have jobs to return to in the cities.

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“My only wish for the new year is that I don’t lose my job,” said Yao Juan, 35, a waitress who moved to Beijing from the central city of Wuhan. Her teenage daughter remained behind with her grandparents. 

“The price of everything is going up, but my salary is not,” she said as she perused the selection at Miniso, a discount Japanese store. She has carefully selected the gifts she will take home for Chinese New Year next month, and she hasn’t bought anything for herself. 

“I had to sacrifice online shopping, one of my biggest enthusiasms, for the greater good of the family,” she said.

This sentiment is now so widely shared that the term “consumption downgrade” — adopting a more frugal lifestyle by buying only absolute necessities — has become a buzzword among many middle-class Chinese.

Gu Xi, 23, who was out shopping for socks, said that looking for a job is a demoralizing pastime. He has sent out more than a dozen resumes looking for a short-term job before graduate school, but has received only three responses. Two were offering unpaid internships and the third — a salesclerk position at Ikea — never materialized.

He instead took a job helping his sister run a modest guesthouse in Beijing. “It’s not an enviable job, but I feel grateful not to be idling away for the whole break, he said.

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Even as domestic consumers are buying less, external demand for China’s prodigious exports is also weakening, and the country posted its worst export numbers in more than two years last month, when the value of goods shipped abroad fell by more than 4 percent compared with the previous December.

This is not just because of the trade war between China and the United States, during which President Trump has imposed tariffs on $267 billion worth of Chinese products. 

Even if the tariffs increased to 25 percent on March 1, as Trump has threatened, the cumulative effect of the tariff would knock only one-third of a percentage point off the growth rate, Evans-Pritchard said.

“The trade war is not the main drag on growth, but I’m sure that one less drag would be very welcome,” he said.

With the global economy slowing, fewer customers worldwide are interested in buying what China produces.

The economy has been generally tracking downward since the growth rate breached the 14 percent mark in 2007, before the global financial crisis struck, and it is expected to slow even further this year. The World Bank forecasts China will record a growth rate of 6.2 percent in 2019. 

In Beijing and across the country, authorities have been pulling out all the stops to try to avoid a hard landing for the economy, promoting measures that are both traditional and inventive.

China’s central bank has cut the proportion of deposits that banks must hold in reserve, a move that could free up almost $120 billion locked in their coffers. 

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The central government, meanwhile, is trying to support companies by cutting corporate tax rates for small businesses and reducing value-added taxes in some industries, particularly in manufacturing. It is also pouring more than $125 billion into new rail projects.

Beijing Mayor Chen Jining on Monday urged malls, supermarkets and convenience stores to stay open later to encourage service industries to hire more workers and shoppers to spend more money.

“This year, Beijing will unleash its potential for promoting higher consumption,” Chen said in a report outlining economic targets for 2019. 

 The Beijing Municipal Bureau of Commerce said that more than half of the convenience stores in the capital will be open 24 hours by 2022.

The province of Hebei, which encircles Beijing, is meanwhile thinking about giving workers Friday afternoon off so they will have a longer weekend in which to shop. It is also promoting more flexible working hours “to encourage new areas for consumption growth,” according to a provincial government plan.

But Collier of Orient Capital Research does not expect these efforts to have much of an effect. “They’re putting their finger in the dike but the water is flowing over the dam anyway,” he said.

Lyric Li and Liu Yang contributed to this report.

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