China GDP grows 5.2%, Xi gets a boost for hammering out final trade deal with Trump

China’s better-than-expected quarterly GDP growth of 5.2 per cent has strengthened President Xi Jinping’s hand in trade negotiations with the United States.

However, there are crucial strings attached with the above-expectation gross domestic product (GDP) growth in the April-June quarter.

The economic data published today shows that the Chinese economy remained resilient amid tariffs — even though there are caveats to such resilience. The GDP growth surpassed economists’ expectation of 5.1 per cent growth and China’s target of 5 per cent growth.

China already has an upper hand in trade negotiations with the United States. Leveraging its near-monopoly in global rare earth supplies, China forced US President Donald Trump to blink in the trade war and offer concessions to secure rare earth supplies — the blockade threatened to choke virtually every industry from household electronics to automobiles and defence equipment. The latest data is further set to strengthen China’s position in the trade war.

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China gets a boost in US trade talks

With the quarterly results, China has got a boost in trade talks with the United States in more than one ways.

Firstly, the better-than-expected GDP growth has showed that Chinese economy remains resilient.

Secondly, despite Trump’s 145 per cent tariff, exports remained largely resilient and China found new markets in Southeast Asia and European Union (EU) to offset any US-related losses. So far this year, while Chinese shipments to the United States fell by 10.9 per cent, Chinese shipments to Southeast Asia and EU have grown by 13 per cent and 6.6 per cent respectively, according to CNBC.

Thirdly, coupled with the rare earths leverage, China has demonstrated that the United States needs China much more than China needs the United States.

With such advantages, China can press for favourable terms in ongoing trade talks with the Trump administration.

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But China’s economy is not that good

Even as China’s GDP grew more than expected and that has strengthened Xi’s hand, the situation is not entirely rosy and there are areas of concern.

For one, even as the GDP growth was above the economists’ expectation of 5.1 per cent, it was down from the GDP growth of 5.4 per cent in the first quarter.

Moreover, retail sales and investment remained lower, showing that the domestic economy remains week and people don’t perceive the economy as growing.

“Industrial production remains the key growth driver, but it’s highly automated and doesn’t generate jobs. Q3 [third quarter] growth is at risk without stronger fiscal stimulus. Consumption is weaker than expected — momentum from the trade-in programme has faded, and housing remains a drag with low transaction volumes. Trump’s tariffs hit exporters hard, triggering SME bankruptcies and damaging sentiment. Both consumers and businesses have turned more cautious, while exporters are increasingly looking overseas for growth,” Dan Wang, the China Director of Eurasia Group, Singapore, told Reuters.

For many, the economy does not “feel” like growing and that perception will have consequences, according to Nick Marro, the Principal Economist for Asia at the Economist Intelligence Unit.

“For many, this doesn’t ‘feel’ like an economy growing at around 5 per cent. That sentiment factor has implications for how sustainable future retail spending is, as well as considerations for businesses about future investment expansions, as well as hiring and wage growth,” Marro told CNN.