Consumers shake off trade war fears to boost China’s economy

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Consumer spending has boosted China's economy. Photo: iStock

Strong consumer spending and massive investment in environmental protection helped China’s economy grow by 6.8% in the first quarter.

Data released by the National Statistics Bureau on Tuesday showed that GDP expansion beat analysts predictions of between 6.5% and 6.7%, despite the threat of financial risks and trade tensions with the United States.

“Consumption is really strong, there is strong wage growth in urban areas,” Iris Pang, the Greater China economist at ING, a global financial house, told Reuters in Hong Kong. “We underestimated the power of consumption in China.”

Online sales have proved a shot in the arm for retail, jumping 35.4% in the first three months of the year compared to the same period in 2017.

Key driver

Another key driver has been a major investment in cleaning up pollution, which has surged 34.2% year-on-year in the first quarter, the National Statistics Bureau confirmed.

“The national economy maintained the momentum of steady and sound development,” said Xing Zhihong, a Bureau spokesman. “The economic performance continued to improve and the economy was off to a good start.”

Last year, the economy grew by 6.9%, the fastest since 2015, even as Beijing moved towards curbing financial risk by squeezing an excessive debt bubble.

CHINA GDP

These latest figures illustrate that China remains resilient, despite President Xi Jinping’s administration ratcheting up the pressure on reducing pollution during the winter by cutting production at steel smelters, mills and factories.

Even concerns of a trade war with the US have failed to dent consumer sentiment, although they have spooked global markets in the past few weeks.

“The picture is pretty robust,” Cui Li, the head of macro research at CCB International, a research and information company in Hong Kong, told Bloomberg Television. “Consumption is very strong, so that is in line with the rebalancing story.”

Trade spat

Still, the US$50 billion tit-for-tat tariffs proposed by Washington and Beijing could cloud “the picture” in the months ahead if the trade spat becomes a full-blown trade war.

There are other problems that will also need to be addressed.

Along with exports, debt-fueled investment has powered China’s economy during the past decade, prompting Beijing to step up its efforts to contain “financial risk.”

“China is trying to deleverage the economy, they are also trying to rein in some of that credit growth,” Sian Fenner, an economist at Oxford Economics, told CNBC.

Read: Slugging it out in the Trade War Beyond The Shore’

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