On Wednesday, China is projected to report approximately five percent growth for the first quarter, aided by exporters racing to mitigate the impact of rising U.S. tariffs, although sluggish domestic consumption continues to be a concern, according to analysts.
The relationship between Beijing and Washington has become increasingly tense as U.S. President Donald Trump has initiated a series of tariffs, particularly affecting imports from China.
This back-and-forth has resulted in U.S. tariffs on China escalating to 145 percent, while China has reciprocated with a 125 percent tariff on U.S. goods.
The official statistics released on Wednesday will provide initial insights into how the ongoing trade war is influencing China’s fragile economic recovery, which was already under strain from low consumer spending and a crisis in the property market linked to debt.
Analysts surveyed by AFP anticipate that the world’s second-largest economy will have expanded by 5.1 percent from January to March, a decline from 5.4 percent in the previous quarter.
Recent figures show that in March, China’s exports surged over 12 percent year-on-year, exceeding predictions, which analysts attribute to heightened order placements to evade expected tariffs set for April 2.
This surge is expected to have bolstered the overall economic growth in the first quarter.
However, experts caution that this GDP figure might be an exception in a year forecasted to present further challenges for China’s economy.
“China’s economy faces pressures from multiple angles,” noted Sarah Tan, an economist at Moody’s Analytics.
“The positive momentum from exports is diminishing as U.S. tariffs come into effect,” she explained.
“Domestic demand is underperforming due to high unemployment rates and a struggling property market,” Tan continued.
Alicia Garcia-Herrero, Asia Pacific chief economist at Natixis, suggested that while the first quarter was likely “quite good,” the outlook for the second quarter is significantly bleaker.
She highlighted that the increased exports to the U.S. in the first quarter were aimed at avoiding further tariff increases.
Additionally, consumption trends during the Lunar New Year celebrations, with many individuals returning to their hometowns, contributed positively to the quarterly results.
Need for Support
In a bid to rejuvenate the economy, Beijing implemented a variety of proactive measures last year such as lowering interest rates, easing homebuying restrictions, increasing the debt ceiling for local governments, and providing support for financial markets.
However, following a strong market rally attributed to expectations of substantial stimulus, enthusiasm has diminished as authorities have not specified the scale of any potential economic support or provided detailed plans.
Analysts expect further governmental intervention to alleviate the burdens created by tariffs.
A crucial point will be stabilizing the distressed real estate sector, which now accounts for six percent of GDP, as remarked by analyst Guo Shan.
“If China has managed its real estate adjustments in the past three years, it should be capable of handling U.S. tariffs, especially by stabilizing the real estate market this year,” Guo, a partner at Hutong Research, noted.
Tan from Moody’s Analytics echoed this sentiment, foreseeing a push from Beijing for additional fiscal and monetary measures this year.
“The government is likely to introduce more stimulus aimed at households, and the People’s Bank of China is expected to reduce key lending rates,” she added.
China is attempting to safeguard its economy against tariffs by encouraging greater consumption and investing in strategic industries.
Nonetheless, the widening rift with the U.S. could threaten hundreds of billions of dollars in trade and impact a crucial economic component that is becoming increasingly vital due to weak domestic demand.
“Given this context, we see a significant downside risk to China’s economic growth,” mentioned analysts at ANZ in a report.
There are concerns that an “extreme scenario” could result in China facing another significant external shock similar to the 2008 financial crisis, according to analysts.
Growth in the second quarter is expected to be worse due to the evolving tariff situation, Guo stated.
“Exports are likely to decline, and investments may slow down as uncertainties affect corporate decision-making,” he commented.
Last month, China’s top leaders set an ambitious annual growth target of approximately five percent, pledging to prioritize domestic demand as the main driver of economic growth.
Many economists view this target as overly ambitious given the current challenges facing the economy.