China’s economy expanded by 6.7 percent in the second quarter, its slowest pace since 2016, as the impact of an aggressive deleveraging campaign curtailed investment in infrastructure. The pace of annual expansion announced on Monday is still above the government’s target of “about 6.5 per cent” growth for the year, but the slowdown comes as Beijing’s trade war with the US adds to headwinds from slowing domestic demand. Gross domestic product had grown at 6.8 percent in the previous three quarters.
A campaign to tackle excessive debt and financial risk that began early last year, following almost a decade of heavy credit stimulus, has weighed on fixed-asset investment, a pillar of overall growth. Such spending grew only 6 percent in the first half of the year, a record low. “A main reason for the slowdown is that infrastructure investment began to slow down in the first quarter as the government was trying to control local government debt,” said Haibin Zhu, chief China economist at JPMorgan Chase in Hong Kong. “The good news is that there is space to provide more financial support through tax cuts and higher infrastructure investment. We expect they will move along these lines.”