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China Slowdown: Has the Economy Bottomed Out?

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  • The natural pace of China’s slowdown has increased amid the US-China trade war. Some of the recent economic indicators suggest that the Chinese economy might be bottoming out.
  • On multiple occasions, President Trump said that his tariffs are hurting the Chinese economy. The next phase of Chinese tariffs will start on December 15 unless President Trump extends or waives them.

China’s slowdown

China’s slowdown has deepened this year. The US-China trade war has amplified China’s economic slowdown. China’s economic growth has fallen to multiyear lows. Meanwhile, some of the recent economic indicators show that the Chinese economy might be bottoming out. The worst of the slowdown might be over. Data released today showed that China’s producer price index, which measures factory-gate inflation, fell 1.4% in November. The metric was 1.6% in October. Economists expected the data to show a contraction of 1.5%. While the producer price index is still in the negative zone, it improved from October and was better than expected. Meanwhile, China’s consumer price inflation rose last month. However, more than any economic recovery, the increase is related to the spike in pork and meat prices.

China’s economy and the trade war

Manufacturing is a key pillar of the Chinese economy. China’s official manufacturing PMI survey, as well as the Caixin survey, expanded in November. Better-than-expected PMI readings eased some of the concerns about China’s slowdown. The country’s trade data were released over the weekend. The data showed a slight uptick in imports. Notably, China’s imports tell us about its domestic economy, while its exports tell us about the global economy’s strength. In recent months, China’s exports to the US fell amid the US-China trade war. Read China’s Trade Data Shows Trade Surplus Narrowed to learn more.

Automotive sales

China’s vehicle sales improved on a monthly basis in November. While they continued to fall on a yearly basis, the pace slowed down. China is a major market for automakers like Ford (F) and General Motors (GM). Reportedly, China would give a subsidy to some Tesla (TSLA) cars. The country bets on electric vehicles to combat higher pollution. Read Can Tesla Stock Rise to $500 with China’s Help? to learn more.

China’s slowdown and metals trade data

China is the largest consumer of most metals. The country’s metals trade data can offer crucial insights into its economy. Notably, China’s slowdown pressured metal prices. The US-China trade war has also put pressure on risk assets including commodities. Meanwhile, China’s steel exports fell last month. While the fall was due to lower production, it also shows that the country’s domestic steel demand is reasonably strong.

Copper imports are another indicator of China’s economic health. Since the country doesn’t have enough copper assets, it has to rely on imports to meet its copper appetite. China’s copper concentrate imports rose more than 27% year-over-year in November to a record high. Unwrought copper imports also rose 5.0% to the highest levels since September 2018.

Bottoming in the Chinese economy

The above analysis shows that some indicators point to bottoming in the Chinese economy. However, not everything is good in the Chinese economy. China’s exports have fallen on a yearly basis for four consecutive months. The US-China trade war is the biggest culprit behind falling Chinese exports. Early next week, we’ll get some of the other key economic data points from China including retail sales and fixed asset investment data. As the Chinese economy transitions from an investment-led to a consumption-driven economy, its retail sales data are even more important.

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