China’s Slowdown Gets Worse, Industrial Profits Fall

  • The US-China trade war has amplified China’s slowdown. China’s economy is growing at multiyear low growth rates. While the growth slowdown is largely a natural process due to the economy’s mammoth size, President Trump’s tariffs and trade uncertainty have also played a part.
  • Over the weekend, China released its September industrial profits data. The metric fell, which highlighted China’s slowdown.

China’s slowdown

Over the weekend, China’s National Bureau of Statistics released its September industrial profits data. Aggregate profits at Chinese companies with annual revenues of more than 20 million yuan fell 5.3% in September. The pace of decline expanded compared to August. In the first nine months of 2019, China’s industrial profits have fallen 2.1% compared to the same period in 2018. Falling industrial profits highlight China’s economic slowdown. China’s economic growth fell to multiyear lows in the third quarter. The growth rates will likely taper down more next year. Notably, the US-China trade war has aggravated China’s slowdown.

China’s economic data

China’s slowdown is a big risk for global markets, especially the metals and mining sector. Chinese economic data have shown mixed signals over the last month. While the manufacturing PMI in September was better than expected and improved, some of the other data points paint a gloomy picture of the world’s second-largest economy. Notably, the US-China trade war is hurting consumers and business investment in both countries. US durable goods orders also fell in September. Incidentally, US corporate investment activity has been weak despite President Trump’s tax cuts.

US economy isn’t doing any better 

In September, the transportation sector led the decline in US durable goods orders. The main culprits were Boeing’s (BA) 737 MAX troubles and General Motors’ (GM) strike. US automotive sales have tapered down after peaking in 2016. Chinese car sales have fallen, which hurts companies like Ford (F) and General Motors. US automotive companies have major exposure to China. As a result, China’s slowdown has a negative impact on automotive companies.

China’s slowdown and equity markets

Looking at China-focused ETFs, the iShares China Large-Cap ETF (FXI) has risen 4.3% in October, while the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) has risen 4.1%. The KraneShares CSI China Internet ETF (KWEB), which focuses on technology companies, has risen 8.5% in October based on last week’s closing prices. Looking at the year-to-date price action, FXI, ASHR, and KWEB have gained 7.2%, 28.5%, and 19.6%, respectively.

The Shanghai Composite Index was in the green today amid optimism about the US-China trade deal. Meanwhile, amid all of the noise about the US-China trade deal, the road doesn’t look smooth for US-China relations. Read US-China Trade War: There’s No Miracle Deal to learn more.