• The latest indicators of China’s economy suggest continued weakness – particularly in the industrial sector – prior to the latest round of trade measures that commenced on 1 September. For now our forecasts of China’s economic growth are unchanged – at 6.25% this year and 6.0% in 2020 – however there is some downside risk to this outlook.
• Growth in China’s industrial production slowed further in August – down to 4.4% yoy (from 4.8% in July). This was the weakest rate of growth since the trough of the Global Financial Crisis (with 3.8% yoy growth across January and February 2009), and came ahead of the latest round of US tariffs on Chinese exports – meaning that there is limited scope for improvement in the short term.
• Growth in nominal fixed asset investment slowed considerably in August, but so too did producer prices (and by extension, the cost of investment goods), meaning that real investment growth slowed moderately, down to 5.5% yoy (from 5.7% previously). There has been a slowing trend in private sector investment in recent months. In contrast, investment by State-Owned Enterprises (SOEs) increased by 7.1% yoy in August – which may reflect government led efforts to boost growth.
• China’s trade surplus narrowed in August, totalling US$34.8 billion (compared with US$44.6 billion in July), as exports declined month-on-month in contrast with a slight increase in the value of imports. The United States continues to account for the majority of China’s trade surplus, despite the declines in two-way trade between the countries due to the tariffs already implemented.
• Real retail sales slowed marginally in August – down to 5.6% yoy (from 5.7% yoy in July) – continuing a clear downward trend since mid-2017. The most recent reading for consumer confidence – recorded in July – was marginally softer at 124.4 points (down from the second highest reading of all time in June of 125.9 points), a level that remains historically high, and at odds with the slowing trend for retail sales growth.
• The People’s Bank of China (PBoC) reformed policy rate settings in late August– revamping its Loan Prime Rate (LPR) to replace the long running benchmark lending rate. The LPR is based on quotes from ten major banks (soon to be expanded to eighteen), who will now have to provide these quotes as a premium above the PBoC’s Medium Term Lending Facility (MLF) rate – a key source of bank funding and now a key policy rate to monitor. This could provide the PBoC with a more direct way to influence lending rates, with banks required to price their loans off the LPR. The PBoC aims for 30% of new loans to be priced off the LPR by the end of September and 50% by year end.

For further details, please see China’s economy at a glance – September 2019.