China Slowdown Fears Intensify after Flurry of Weak Data

  • China’s slowdown concerns have intensified amid a flurry of soft data points. On October 15, China released its September producer price inflation data, which showed deflation. However, the country’s retail inflation climbed due to rising pork prices.
  • China’s September trade data showed a contraction in both imports and exports. The country’s automotive sales also tumbled last month.

China’s slowdown fears

China’s slowdown is a major risk for global markets. The country’s economic growth, already stalling near multiyear lows, is expected to slow down even further. On October 15, China released its September inflation data. The country’s retail inflation spiked amid rising pork prices. However, its PPI (producer price index) was -1.2% last month. China’s PPI has now been negative for three consecutive months. Negative PPI is an indication of a growth slowdown. Trade uncertainty has especially hit China’s manufacturing sector. China’s industrial profits have also tumbled.

Other data points

Negative PPI isn’t the only indicator of China’s slowdown. On October 14, the country released its September trade data, which showed contraction in both imports and exports. The data was worse than expected. Furthermore, China’s imports have fallen YoY (year-over-year) in eight out of nine months this year. Weak imports are reflective of China’s slowdown. China’s exports to the US have also fallen over the last couple of months amid President Trump’s tariffs.

Weak automotive sales and China’s slowdown

China’s automotive sales have fallen sharply. The country’s car sales fell 5.2% YoY in September. China’s car sales have fallen YoY in 15 out of the last 16 months. Falling automotive sales intensify China’s slowdown, as they hurt demand for supporting industries—especially metals. Both Ford (F) and General Motors (GM) have reported weak Chinese sales this year. In what could spell trouble for electric vehicle makers such as Tesla (TSLA) and (NIO), China’s new energy vehicle sales have also tumbled in the last three months. NIO stock has fallen sharply this year. Tesla is also in the red. However, both Ford and General Motors are in the green this year.

Trade war

Meanwhile, China’s slowdown has been further aggravated by the trade war. While optimism over a partial trade deal lifted the markets on October 11, a lot of work still needs to be done for a US-China trade deal. Chinese stocks Alibaba (BABA) and JD.com (JD) also rose on trade deal optimism.

While a trade deal would help restore investor sentiment, other policy tools will be required to address China’s slowdown. The iShares China Large-Cap ETF (FXI) provides exposure to Chinese stocks. FXI is up 3.4% this month and up 6.4% for the year. Alibaba and JD.com have risen 24.9% and 42.5%, respectively, this year based on their October 14 closing prices.