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In the second quarter of 2019, China's economy grew at 6.2 percent year-on-year, a slight drop from 6.4 percent in the first quarter and, more notably, a nearly 30 year low. Not even during the global financial crisis of 2008–2009 did China’s GDP growth rate fall below 6.4 percent. Nevertheless, China remains the fastest-growing economy among the world's largest economies.

 

It's misleading to point to the trade war with the United States - which hurts Chinese exports - as the cause for the economic slowdown because the reality is more complicated and concerning. True, Chinese exports decreased significantly as a result of the trade war with the United States: in 2019, export growth halted and slipped into negative rates, whereas 2018 boasted 10 percent export growth year-over-year. But, the trade war is not one-sided.

What does the trade war mean then if not a direct hit on China's GDP? Even if there was no direct effect of the trade war on Chinese GDP through the trade balance, the decline in exports and expectations from the trade war chill investment, employment, and household consumption, the strength of which to date has sustained the country's economic growth. Chinese consumers cannot trail the economy forever, and the trade war, along with other financial structural problems, such as high debt levels, decelerating real estate market, and unproductive use of capital, may contribute to a further decline of the world's largest economy before long.

 

Read more on Evidence for Chinese Economic Recession in our Insights blog.

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