China's export engine expected to cool, further slowing growth

American customers of Ningbo Frank Electric Co., a Chinese manufacturer of kettles and other appliances, place orders several months in advance, said salesman John Zheng. "Everything looks so good right now," he said. "But that will not continue."

China on Friday released a dismal record of the performance of its economy, the economic growth rate slipping to 6.5% in the third quarter, its slowest pace since the global financial crisis. Just before the release of the press release – and after the 3% drop in Chinese shares on Thursday, bringing losses down to nearly 25% since the beginning of the year – the country's highest financial regulators have all commented on the situation. in order to calm investors.

This rare joint effort was followed by an interview published by the official Xinhua News Agency with the Chinese tsar, Vice Premier Liu He, who downplayed the impact of the trade dispute and hinted that the low prices shares represent a buying opportunity.

"This shows how concerned they are about the economic outlook and the downward trend in the market," said Zhou Hao, Senior Emerging Markets Economist at Commerzbank.

For months, the Chinese economy has been on a downward trend, with a variety of measures including property, plant and equipment, car sales and slower retail sales. In the meantime, companies are preparing for US tariffs on Chinese products to meet their targets. That does not seem to be happening yet, because American companies have accumulated their purchases before tariffs. The usual burst of orders in anticipation of the US holiday season also helped.

Chinese exports grew at an average monthly rate of 11.7% in the third quarter, reinforcing the weak performance of the economy. "Thanks to frontloading, the negative impact of the trade dispute with the United States is so far limited," said Grace Ng, an economist with

JP Morgan
.

But Washington has announced that it will raise tariff rates on Chinese goods for $ 200 billion, from 10% currently to 25%, and threatens to impose additional tariffs on 257 billion dollars of Chinese products. Analysts say it's only a matter of time before premature orders are multiplied and customers cancel all their purchases.

Macquarie Capital Ltd. believes that China's export growth will decelerate between 5% and 10% in the coming months. Ms. Ng, of J.P. Morgan, predicts that exports will begin to weaken in 2019, reducing overall economic growth to 6.1% next year.

This year at China's annual Chinese import and export fair in Guangzhou, thousands of Chinese suppliers showcased their products, including electrical appliances, lighting, building materials and equipment. . Potential sellers flooded the exhibition halls of the Canton Fair, suggesting that global trade would be healthier.

But many Chinese companies that rely on the US market are worried about the difficult days ahead. US customers of RainMin Illumination Ltd., a manufacturer of LED light bulbs in SeaWorld amusement parks and festivals, such as Burning Man and Coachella, were pushing back orders and sending emails to determine whether society would lower its prices.

"This is the biggest challenge since our installation, 15 years ago, even more than the 2008 crisis," said Liu Xiaoyan, one of the leaders of the company.

Mr. Liu enthusiastically exchanged business cards with Indian buyers, although once he left, he lamented that their market was not developed enough to require huge installation projects than the company's LED bulbs. serve. "It's impossible this time."

At a booth selling wine refrigerators, Lu Tao feared that his family's business income will fall by 40% this year. He said he plans to start selling directly to US consumers on the Chinese Taobao e-commerce website, removing US distributors. The higher prices that it could charge would offset the tariff costs. "A refrigerator that I now sell for $ 300 can cost $ 1,000," Lu said.

Analysts expect Chinese leaders to support growth if exports, investment or consumption weakens too much. Keeping the economy at a fast and relatively fast pace is considered essential for the Communist Party in order to maintain social stability. Beijing has repeatedly stimulated the economy through fiscal and monetary measures. In recent months, financial market liquidity has increased, while allowing the Chinese yuan to depreciate to help Chinese exporters. Policymakers have also asked local governments to issue more headlines, in the hope that they will spend again in projects.

Chinese and American companies are maneuvering to mitigate the shock of the commercial struggle. At the export fair, some Chinese sellers said they could offset some reduction in US orders by selling to other countries. Others boasted that their customers were already thinking of ways to redirect transportation to Taiwan, Mexico and other places not subject to higher tariffs in the United States. A common argument: China remains the world's No. 1 well-made products at competitive prices.

However, analysts believe that the Chinese economy can not avoid the headwinds, because the commercial fight breaks corporate confidence. They are not optimistic about easing tension between the two countries, even as President Xi Jinping and President Trump prepare to meet in late November.

Sandi Kegebein was part of Wisconsin in Guangzhou looking for Chinese products on behalf of her supply company, SC Global Sourcing Inc., which has already placed an order next spring. "We buy as much as we can," Kegebein said. If higher rates came into effect, she added, the company could decide to buy products already in US warehouses.

-Lingling Wei and Grace Zhu contributed to this article.

Write to Chao Deng at [email protected]