- China’s slowdown has worsened this year. China Beige Book’s private survey on the Chinese economy suggests growth may have slowed even more in the third quarter.
- Although China has somewhat toned down its trade talk rhetoric, a trade deal between the world’s two biggest economies has been elusive so far.
Bloomberg reports that CBB’s (China Beige Book) survey shows the manufacturing, service, and property sectors have all slowed down in the third quarter. CBB also estimates that China’s economic growth could fall further in the quarter. The country’s slowdown has worsened this year amid US trade tensions. China’s GDP expanded by 6.2% in the second quarter, down from 6.4% in the first quarter.
According to Bloomberg, the CBB report showed that hiring in China’s service sector has slowed. It added that if there were large-scale job losses in the manufacturing sector, the service sector might not be able to absorb the laid-off workers.
The US job market has also decelerated this year. Furthermore, the September flash PMI survey shows the US job market could worsen.
What’s driving China’s slowdown
The CBB report blamed China’s deepening slowdown on the manufacturing sector, reports Bloomberg. It also said that weak exports and negative producer price inflation were driving China’s slowdown. In July and August, China’s exports to the US fell year-over-year. And recently, Apple (AAPL) said that it would manufacture its new Mac Pros in Texas.
Bloomberg wrote that the CBB report also raised concerns over the country’s rising debt. The report sought to downplay the popular perception that there is a shortage of credit supply in China, stating that borrowing has bounced back.
Over the last few years, China has taken several measures to reduce its reliance on the shadow banking sector. However, as reported by Bloomberg, “Shadow banking posted the biggest quarterly increase since the Beige Book began.”
Borrowing rises despite China’s slowdown
Notably, the shadow banking sector is a structural risk for the Chinese economy. The country has been trying to address the issue and control speculation in the property sector. Meanwhile, higher borrowing while China’s economy is slowing also raises long-term economic risks. A prolonged slowdown could reduce Chinese companies’ ability to pay off loans. The negative producer price inflation and sagging corporate profits aren’t helping matters, either.
The trade war is being felt in the US, too. US companies Apple and NVIDIA (NVDA) have said China’s slowdown is hurting their earnings.