The Strategist

Chinese industry starts suffering from lack of demand


09/18/2019 - 09:59



Fall in global demand and uncertainty associated with the outcome of the PRC – US trade war, along with the action of duties already imposed by the parties, caused a record drop in China's macro-indicators. According to the National Bureau of Statistics of the PRC, the industrial production growth in this country in August turned out to be minimal over the past 17 years, and amounted to 4.4% (4.8% in July, while market participants expected 5.2%).



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Over the eight months, the growth of investment amounted to 5.5% (0.2% less than in January – July, which is equivalent to a slowdown from 5.2% in annual terms in July to 4.3% in August). The main decline was recorded in investments in industry, while investments in railway infrastructure grew by 11%, in production - by 26.2%. Retail sales grew weaker than expected - by 7.5% (minus 0.1 percentage points compared with July).

Chinese Premier Li Keqiang said earlier that achieving 6% growth this year will be “very difficult” due to external pressure. Recall that the official benchmark for GDP growth (annually set by Chinese government in March) for 2019 is 6-6.5%. Last year, the figure was 6.6%. However, this assessment was made before the United States announced an increase in duties on almost the entire volume of Chinese imports. Now, US duties apply to deliveries from China worth $ 362 billion in total. Beijing has imposed additional tariffs on US imports of approximately $ 120 billion.

“The new data confirms that the Chinese economy is experiencing a cyclical decline. Even the weaker Yuan will not be able to fully compensate for the costs of protective duties and lower external demand,” Capital Economics notes. ING Bank agrees that the voluminous fiscal support through increased government spending will not stop loss of export orders. In particular, the production of smartphones in China decreased by 10.7% year-on-year and cars - by 7.3%. As a result, China's GDP growth rates in the third and fourth quarters of this year will slow down to 5.7–5.8%. In the whole year, the indicator may reach 6%, experts say. They expect introduction of new incentive measures, including in the technology sector, for which Beijing wants greater independence from foreign suppliers.

source: capitaleconomics.com




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