• There was a broadly negative trend in China’s data in November. Industrial production was at a post-GFC low, trade activity slowed noticeably and the retail sector remains subdued. Combined, these indicators point to slowing economic growth in Q4 – albeit within the bounds of our forecasts. Our forecasts remain unchanged, with China’s economy growing by 6.6% in 2018, down to 6.25% in 2019 and 6.0% in 2020.
• China’s industrial production growth slowed considerably in November – increasing by 5.4% yoy (compared with 5.9% in October). This was well below market expectations, and was the same growth recorded in the January-February period in 2016, which was the weakest rate recorded since the GFC. China’s main manufacturing surveys highlight broadly neutral conditions in the industry at present, with export orders particularly weak.
• China’s nominal fixed asset investment grew a little more slowly in November. However, the sharp downturn in producer prices – which flow through into investment goods – meant that real investment growth increased, up by 5.6% yoy, from 5.3% in October.
• There was a marked slowdown in the growth rates of China’s exports and imports in November, which may reflect the deterioration in the global trading environment (following the dispute between the US and China). Some of the slowdown in exports may also reflect timing impacts of US tariffs – with purchases brought forward ahead of the second round of measures in late September subduing more recent demand. The outlook from here is highly uncertain.
• In real terms, China’s retail sales growth edged marginally higher in November – to 5.8% yoy (from 5.6% in October), a historically weak result. As highlighted in our detailed article last month, this measure includes public and private business spending, meaning that the slowdown could be linked to trends other than household consumption. This may explain why consumer confidence has remained firm. The measure was stronger in October – at 119.1 points (compared with 118.5 points previously). While off the peaks of early 2018, confidence has remained well above the levels seen over the previous decade.
• New credit issuance remained weak in November, with lending falling by around 20% yoy. The continued declines in new issuance suggests that Chinese authorities are yet to introduce widespread stimulus in response to US tariffs, implying that the need to address corporate debt concerns remain a priority.
• Following the considerable volatility exhibited across the third quarter, the 7 day Shanghai Interbank Offered Rate (Shibor) has become far more stable recently – since the start of November, it has traded in a band of less than 10 basis points around the 2.6% mark. This represents an easing of around 25 basis points from the early 2017 to mid 2018 period. This appears to be the target rate for the Shibor in the short term, however the general tightening trend in monetary policy globally may present some upside risk going forward.

For further details, please see the attached document:

China’s economy at a glance – December 2018