China's economy grew at the weakest pace in three decades last year, according to official figures published Friday, but surprisingly solid December data suggests Beijing may have weathered the worst of its damaging trade war with the United States.
China GDP slowed to 6.1% for the whole of 2019, the National Bureau of Statistics said Friday, down from a 6.6% pace in the previous year and the weakest annual growth rate since 1990. China's 2019 exports to the United States 12.5% from the previous year, Customs data showed earlier this week, while imports plunged 21%. China's trade surplus with the U.S. narrowed by around 8.5% to $295.8 billion.
Fourth quarter GDP, however, held steady at 6%, and December data detailing retail sales and government investment all surprised to the upside. Factory activity, as well, rose 6.9% -- a full point above analysts' forecasts -- indicating that business and investment sentiment has improved since Beijing agreed to President Donald Trump's phase one trade deal in early December .
The fourth quarter gains were also likely the result of aggressive action from China's central bank, the PBOC, which has cut the so-called reserve requirement ratio eight times over the past two years, freeing up billions in cash for the nation's banks to lend into the real economy.
"These numbers suggest that China's economy has stabilised following exhaustive efforts by the government and central bank," said ING chief economist Robert Carnell. "That job isn't over, and the external backdrop is still very challenging, with average tariff rates on exports to the US much higher still than they were 18 months ago."
"The negative direction of travel by China's economy may have been abated, he added. "But 2020 will likely be about stabilisation, rather than "recovery".
China's yuan rose to a five-month high of 6.866 against the U.S. dollar Friday following the GDP data, while domestic stocks reversed earlier declines to end the session modestly higher, with a 0.05% gain for the Shanghai Composite and a 0.14% advance for the tech-heavy CSI 300.
China still faces significant challenges in the months ahead, however, even as its top officials return from Washington having signed a breakthrough trade agreement with the United States.
Beijing must find a way to honor its commitment to purchasing an extra $200 billion worth of American-made goods -- including $95 billion in energy and agricultural commodities -- while maintaining support for its domestic industries and managing a growth rate that is notably slower than the 6.5% it had previously targeted for its "moderately prosperous" society.
China must also grapple with the fact that tariffs on $250 billion worth of its goods must still be paid by U.S. importers when they're solid into the world's biggest economy, a condition that could either tempt Beijing to tinker with its currency -- triggering reprisals from the Trump administration -- or force price reductions form exporters already suffering from the weakest growth since the 1990s.
"We are hopeful that some of the recent infrastructure spending will provide more of a tangible lift in early 2020, as the net export sector is unlikely to do much following only very modest changes in effective tariff rates after the phase-one trade deal," said ING's Carnell.