10 Jul

China’s Economic Indicators Disappoint Yet Again

WRITTEN BY Mohit Oberoi, CFA

China’s economic indicators

Today, China released several economic data points. China’s economic indicators have been in focus due to concerns about its growth slowing down. The data released today showed that China’s PPI (producer price index) for manufactured goods fell 0.3% month-over-month in June. The PPI was unchanged on a year-over-year basis. The data missed analysts’ expectations. China’s consumer price index rose 2.7% in June. However, the rise was largely led by a sharp rise in pork and fruit prices. Julian Evans-Pritchard, a senior China economist at Capital Economics, said, “The bigger picture is inflation, apart from food inflation, is actually pretty weak and with the economy continuing to cool, I think the return to factory-gate deflation is very likely.”

Looking at other economic indicators, China’s car sales fell 9.6% in June. China’s car sales have fallen on a yearly basis for 12 consecutive months. Ford (F) and General Motors (GM) have significant operations in China. While China’s industrial profits in May were better than expected, other economic indicators including fixed asset investment and industrial production, the missed estimates. US economic data has also been mixed. While the July manufacturing PMI data looked weak, core capital goods orders showed some uptick.

China’s growth slowdown

China’s growth slowdown has been amplified by its trade war with the US. Although both of the countries decided to put the trade war on hold after last month’s meeting between President Trump and President Jinping, its been an uneasy truce. After the truce, President Trump lashed out at China for its alleged currency manipulation. China has also taken potshots at the US. In a veiled attack, China talked against protectionism in the guise of national security. The US slapped tariffs on steel and aluminum imports. President Trump said that the imports threaten US national security. A similar probe into automotive imports was also carried out by the Department of Commerce. While US steel companies welcomed the tariffs, automotive companies like Ford and General Motors have been apprehensive about possible tariffs due to their global supply chains. However, US steel and aluminum stocks have suffered despite the tariffs. US steel prices have also fallen this year. Last year, prices rose to multiyear highs.

Huawei

President Trump also flagged Huawei as a national security threat. The company needs prior approval to do business with US companies. Semiconductor stocks like Micron (MU), NVIDIA (NVDA), Intel (INTC), Qualcomm (QCOM), and Broadcom (AVGO) have significant revenue exposure to China. They have been volatile amid the Huawei news flow. According to a CNBC report, Qualcomm, Micron, NVIDIA, Broadcom, and Intel have revenue exposure of 67%, 66%, 53%, 49%, and 42%, respectively, to China.

The next key economic indicator that China would release would be its trade data. The data is scheduled to be released on Friday. China’s trade data has been under focus amid the trade war. Read What Next in the US-China Trade War Saga to learn more.

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