China vows to meet 2018 economic targets despite trade fight

August 15, 2018 - China is able to weather the escalating trade war with the U.S. and achieve its economic targets for this year, an official at the nation’s top economic planning body said.

The impact on industrial production, employment and consumer prices will be “controllable” through proactive fiscal policy and prudent monetary policy, Cong Liang, a spokesman for the National Development and Reform Commission, said at a briefing on Wednesday.

China’s economic growth slowed to 6.7 percent, the slowest pace since 2016, in the second quarter as Beijing’s campaign to cut debt began to bite. Still, it remains above the annual target of 6.5 percent.

Policy makers face a difficult balancing act in trying to tackle debt while supporting growth. Fixed-asset investment rose at the slowest pace in two decades during the first seven months of the year, data released on Tuesday showed, while infrastructure spending fell to a quarter of the pace seen a year earlier.

Factory output, retail sales and credit creation in July all missed estimates.

In the same month, new-home prices rose at the fastest pace in nearly two years, according to data released on Wednesday, complicating government efforts to restrain price gains without worsening the broader slowdown.

Policy makers are taking steps to head off a deeper slowdown. The People’s Bank of China has cut reserve ratios for banks three times this year in an effort to inject liquidity into targeted sectors and economists expect it to do so again in the second half. The government ramped up fiscal spending in June.

The impact of the trade war with the U.S. appears limited so far, but further escalation could sap growth momentum.

Trade With Europe

Cong said the government is capable of coping with a deeper trade war. It continues to open the economy, encouraging foreign-direct investment and lowering tariffs, he said, citing rising trade with the European Union and Southeast Asia.

China’s exports to the EU grew 11.3 percent in the first seven months of the year, while overseas shipments to Southeast Asia rose 17.9 percent, according to customs data.

Cong said the debt-cutting campaign will be carried out in a “targeted, gradual and orderly way,” and will include preventing the creation of new local government debt and implicit public debt.

“Simply expanding investment can hardly bring high economic and social benefits. We ought to think of targeted and efficient investment,” he said, adding that more highway construction and infrastructure projects in education and medical care will be considered.

Source: Bloomberg