China will strive to hit growth target despite trade tensions with U.S.

BEIJING (Reuters) - China will keep its economic growth within a reasonable range and achieve this year’s target despite challenges, the state-run Xinhua news agency said on Tuesday as a trade war with the United States intensifies.

FILE PHOTO: Shipping containers are seen at a port in Shanghai, China July 10, 2018. REUTERS/Aly Song

The world’s second-largest economy has already felt the pinch from Beijing’s multi-year deleveraging drive that has driven up corporate borrowing costs and delayed government projects.

Beijing is also aware that friction with the United States over trade is creating uncertainty for its job market, and has pledged not to let the row trigger large-scale unemployment.

In July, growth in China’s manufacturing sector slowed more than expected, partly due to the worsening trade dispute with Washington, according to an official poll of Chinese firms on Tuesday.

Earlier in July, the United States had imposed tariffs on $34 billion of Chinese imports, and said it could potentially impose levies on an additional $16 billion of shipments.

Beijing has responded by levying taxes on U.S. products, leading President Donald Trump to threaten tariffs on $500 billion of Chinese goods.

“We must do a good job in stabilizing employment, finance, foreign trade and investment, and expectations,” Xinhua said, citing a statement released after a meeting of ruling Communist Party’s Politburo.

China’s economy faces some new problems and new challenges, including “significant changes in the external environment”, Xinhua cited the Politburo meeting - chaired by President Xi Jinping - as saying.

“We must seize the main contradictions and take targeted measures to solve them,” it said.

The trade tensions with the United States were not specifically mentioned.

China is ready to respond to any U.S. tariff measures, whether they are tariffs on $16 billion or $500 billion of goods, a Chinese government official said last week.

China’s economic growth slowed slightly to 6.7 percent in the second quarter, but was still above the official 2018 growth target of about 6.5 percent.

However, the trade row with Washington, a slowing domestic property market and reduced outbound shipments have sharply increased the risks to China’s economic outlook.

Trade tensions between the two sides have remained taut as Beijing expresses antitrust concerns about a planned takeover by U.S.-based Qualcomm Inc (QCOM.O) of NXP Semiconductors (NXPI.O).

Qualcomm last week abandoned what would have been the world’s biggest ever semiconductor sector takeover after a deadline the companies set passed without the deal winning China’s required approval.

China’s official Purchasing Managers’ Index (PMI) released by the National Bureau of Statistics (NBS) on Tuesday fell to 51.2 in July, from 51.5 in June and below the 51.3 in a Reuters poll of economists. It was also the lowest index reading since February.

Another survey released by the NBS on Tuesday showed growth in the service sector moderating in July, with the official non-manufacturing Purchasing Managers’ Index (PMI) dipping to 54.0 from 55.0 the previous month.

While Chinese markets reacted little to the softer indicators, the economic moderation points to a more challenging second half in 2018, many economists say.

A widely watched private survey on Wednesday may shed more clues on China’s manufacturing sector in July. In June, the Caixin/Markit Manufacturing PMI fell from May.

“We will have a better idea of how the economy has performed recently when the July reading of the Caixin manufacturing PMI, a better guide to cyclical trends than the official index, is published tomorrow,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

“But for now, today’s data are consistent with our view that China’s economy is on track to slow further this quarter and next, triggering additional policy easing.”

China will step up infrastructure investment in targeted areas, support innovations and lower corporate costs, the Politburo was quoted as saying.

Reuters reported last week that Beijing plans to put more money into infrastructure projects and ease borrowing curbs on local governments to support the economy.

Shares in Chinese infrastructure firms have since risen, bucking broad weakness in the stock market. An index tracking major infrastructure firms on the mainland .CSI300II has gained about 0.7 percent since Friday.

China is able to win the battle against various economic risks and challenges and needs to maintain confidence, state radio on Tuesday quoted Xi as saying.

It will better balance its financial risk prevention and support for the real economy, maintaining its deleveraging drive but paying attention to its pace and intensity, it added.

It will ensure the fulfilment of the annual economic growth target, while maintaining a proactive fiscal policy and a prudent monetary policy to ensure ample liquidly, the agency said.

“Fiscal policy should play a greater role in expanding domestic demand and promoting structural adjustments,” the Politburo was quoted as saying.

Last week, China’s cabinet pledged to make fiscal policy more proactive to help tackle external uncertainties without resorting to strong policy stimulus.

But the Politburo meeting also pledged to “resolutely curb” housing price rises and speed the process of establishing a long-term mechanism for the property sector, the agency said.

Reporting by Kevin Yao and Elias Glenn; Additional reporting by Ryan Woo and China monitoring desk; Editing by Clarence Fernandez and Angus MacSwan

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