China Admits to Slowdown—Albeit Grudgingly

  • China’s slowdown is becoming more apparent with its latest economic data releases.
  • Previously, Chinese authorities disputed that the trade war was hurting the economy. Now, it seems the country is finally waking up to the fact.
  • Trade war fears have taken a toll on the markets this month. Apple (AAPL) and Alibaba (BABA) have lost 2.7% and 4.2%, respectively, in August. The iShares China Large-Cap ETF (FXI) is down 5.4%.

China admits to the slowdown

Today, China released its July industrial profit data. Aggregate profits at Chinese enterprises with annual revenue of more than 20 million Chinese yuan rose 2.6% YoY (year-over-year) in July. The metric contracted 3.1% YoY in June. While the country’s July industrial profits moved into the positive zone, the metric is still in the negative if we consider the consolidated data for the first seven months of 2019. Chinese authorities finally seem to be admitting to the economic slowdown. Reuters reported that Zhu Hong, a senior statistician at China’s National Bureau of Statistics, said, “The downward pressure on the economy is relatively high, the market demand is slowing down, the prices of industrial products are falling.”

Other data points also reflect the slowdown

Some other data points, such as retail sales, industrial production, and fixed asset investment, have also been soft, reflecting China’s slowdown. The country’s producer price inflation also turned negative last month. Producer level deflation is another indicator of China’s slowdown. While releasing these data points, China’s National Bureau of Statistics alluded to global and domestic challenges.

China’s second-quarter GDP

China’s second-quarter GDP grew at its slowest pace in 27 years. President Donald Trump said his tariffs were responsible for the slowdown. However, China rebuffed his claims, saying that its economy is performing reasonably well. It also refuted Trump’s claims that it badly needs a trade deal with the US due to its slowdown. On August 15, Trump said that China could be in for a recession if it doesn’t forge a trade deal with the US.

IMF on the slowdown

The IMF also lowered China’s growth forecast. It blamed Trump’s tariffs for the slowdown in the country. Chinese car sales have also fallen YoY for 13 consecutive months. Even its electric vehicle sales fell YoY in July. The country’s electric vehicle sales have been strong even as overall car sales have plummeted.

China finally seems to be admitting that its economy is in a slowdown. So far, though, it hasn’t resorted to any major stimulus for an economic boost. Chinese equity markets have also underperformed global markets this year. The iShares China Large-Cap ETF is flat for the year. US markets are still sitting on double-digit year-to-date gains.