Global markets rise despite slowest Chinese growth for 30 years

Phillip Inman
Photograph: STR/AFP via Getty Images

China’s economy stumbled last year to its lowest growth rate in almost 30 years after the tit-for-tat trade war with the US took its toll on manufacturing output and consumer spending.

The world’s second-largest economic power grew by 6.1% in 2019, down from 6.8% in 2018, and the lowest rate in 29 years.

However, investors cheered an apparent turnaround in fortunes following better-than-expected industrial output and retail sales figures for December, sending stock markets in Asia, Europe and the Americas higher.

The roots of the dispute come from US president Donald Trump’s “America first” project to protect the US’ position as the world’s leading economy, while encouraging businesses to hire more workers in the US and to manufacture their products there.

Trump complains of a large trade deficit with China, which he views as a symbol of the US’s decline as a manufacturing powerhouse. Chinese imports to the US totalled $539.5bn last year, while $120.3bn was sold the other way – leaving a trade deficit of $419.2bn.

The president has accused Beijing of “unfair” trade policies, including allowing the theft of US companies’ intellectual property. The threat of import tariffs on Chinese goods is being used as leverage in talks where Trump is seeking changes to Beijing’s trade policy.

Tariffs have been imposed by Washington on some Chinese goods sold in the US for about a year. They came on top of broader tariffs used by Trump that have hit China and other trading partners such as the EU, Canada and Mexico, on goods including steel and aluminium.

In May 2019 the US president further ratcheted up existing import tariffs of 10% on $200bn (£153bn) of Chinese goods sold in the US to 25%, hitting everything on a long list of products. Trump has previously warned that 25% tariffs could be slapped on a further $325bn of goods  – which would mean all Chinese imports being covered by tariffs. 

However, talks in November 2019 aimed at easing tensions were welcomed as the beginning of a thaw in the trade war between the two nations.

Richard Partington and Jasper Jolly

The main international markets were all positive following signs of improved business and consumer confidence in China, with Britain’s FTSE 100 gaining 71 points or almost 1%.

Ricardo Evangelista, senior analyst at ActivTrades, said optimism was spreading across the City of London about China’s ability to ride out the turmoil caused by Trump’s tariff hikes on Chinese imports.

“The positivity came mainly from China, where industrial production and retail sales both exceeded the forecast, appearing to signal the turn of a corner for the growth of the Chinese economy,” he said.

The US and China signed a first stage trade deal earlier this week that was characterised by analysts as a truce, after it signalled a limit on tariffs but left many in place.

Investors are hoping that the deal, although limited, could help thaw relations.

China’s industrial production grew 6.9% year-on-year in December, which was the strongest in nine months. Retail sales grew by 8%, which was also stronger than expected, while fixed-asset investment beat forecasts with 5.4% growth.

Jim Reid, a fixed-income analyst at Deutsche Bank, said: “Overall a strong set of December numbers came out from China pointing to a gradual recovery in economic activity.”