Burdened by ongoing trade tensions and investor skepticism, China’s economy grew at its slowest rate in decades, failing to reach the 6.3% year-over-year pace forecast by economists.

Exports fell 1.3% in the wake of burgeoning American tariffs, and investments remained weak on a quarterly basis.

Beijing’s efforts to boost the economy – including a tax reduction of 2 trillion yuan ($291 billion) – failed to stimulate overseas investment in Chinese markets. Manufacturing-investment growth of below 6% in consecutive months diminished net growth; several prominent businesses reversed investment and infrastructure development plans in Beijing.

Economists predict that Beijing will loosen monetary policy and relax borrowing controls to reach their targeted GDP growth. For months, Beijing embarked on credit-loosening measures to encourage public spending, but financial institutions have been slow to react. Local agencies are reluctant to boost spending, fearing denunciation from the national government for driving up debt. Debt represented 247% of China’s $13 trillion economy at the end of March, up 5 percentage points quarterly.  

There was some growth in domestic infrastructure. Investment in bridges and roads rose 5.8% through the first half of the year; factory output was up 6.3% in June from 2018. Another promising data point through June was consumption, with higher sales of automobiles driving retail growth and food purchasing.

Domestic sentiment in the quarter was depressed by the ups and downs of the China-U.S. trade dispute. President Xi expressed reluctance to reinitiate trade talks with the Trump administration following the breakdown in negotiations in June. China has taken a hardline stance, and the Trump administration’s sanctions are expanding accordingly. “There should be big volatility in China’s economy right now,” said Ting Lu, chief China economist at Nomura International. Tax cuts, he said, will have little effect on market sentiment during a period of intense trade tensions.

Read More via The Wall Street Journal