• China’s economic growth was stable in Q4 – increasing by 6.0% yoy, the same rate as in Q3 – in line with our expectations. For the full year, China’s economy grew by 6.1%, towards the lower bound of the Government’s target of 6%-6.5%. This was the weakest increase since 1990. Despite the negative impact of the US-China trade war, there was a pickup in growth from the industrial sectors in Q4 – offsetting a slowdown in services.
• Reports suggest that China will lower the growth target for 2020 to ‘around 6%’ at the National People’s Congress in March. Our forecasts for China’s economic growth remain unchanged. We anticipate further gradual slowing over the next two years, with growth of 5.9% in 2020 (near the reported target), before easing to 5.8% in 2021.
• China’s industrial production growth accelerated for the second straight month in December. Seasonally adjusted month-on-month data suggest the industrial sector stabilised in Q3 and has started to strengthen more recently – in line with the results of PMI surveys.
• Fixed asset investment growth accelerated again in December. State-owned enterprises (SOEs) grew more strongly than private sector firms across much of 2019, however nominal investment by SOEs slowed in December. In contrast, investment by private firms has picked up.
• China’s trade surplus widened in December, as the month-on-month increase in exports exceeded the increase in imports. The large year-on-year increase in import values, combined with a decrease in commodity prices over the same period, suggests a sizeable rise in import volumes in December (in stark contrast to steep falls across much of the year).
• Producer prices fell by around 0.5% yoy in December – compared with 1.4% fall in November. The overall Producer Price Index appears to have stabilised – having fallen from the latter months of 2018 through mid-2019. Month-on-month falls in global commodity prices have occurred more recently, easing the pressure on China’s manufacturing sector.
• Chinese authorities have made further reforms to monetary policy transmission – by removing previous loan benchmarks and requiring banks to reprice existing loans to the new benchmark Loan Prime Rate between March and August this year. This should lower funding costs for borrowers, with the exception of real estate (which is excluded). The Loan Prime Rate (LPR) remained unchanged at 4.15% in December.

For further details, please see China’s economy at a glance – January 2020