China: Fighting a trade war on many fronts - NAB

Gerard Burg, Senior Economist at NAB, suggests that we are yet to see any clear signs – at least outside of survey measures – of any significant impact from US trade measures on Chinese economy.

Key Quotes

“This may change as the range of goods covered under tariffs (likely) expands in coming months.”

“In the meantime, Chinese authorities appear to be fighting the trade war on many fronts – including increasing tax rebates for exporters, loosening restrictions on infrastructure investment and easing monetary policy.”

“In addition, the currency has also depreciated significantly – down around 7% since the start of June – increasing the competitiveness of Chinese exporters. Our forecasts for China’s economic growth are unchanged – at 6.6% in 2018, 6.25% in 2019 and 6.0% in 2020.”

“China’s industrial production increased by 6.1% yoy in August – marginally above the 6.0% recorded in July.”

“There was a modest increase in real fixed asset investment in August – up by 0.7% yoy, compared with a decrease of 0.9% yoy in July.”

“China’s trade surplus was virtually unchanged in August – totalling US$27.9 billion. So far we are yet to see any impact from US trade measures (or retaliatory Chinese tariffs) on the US-China trade relationship.”

“Exports to the United States increased by 13.2% yoy in August – a larger than average increase – to an all time high of US$44.4 billion.”

“Real retail sales growth slowed further in August, to 6.4% yoy – the slowest rate of growth since May 2003. Despite the softening trend in sales, consumer confidence has remained robust – moving up in July to 119.7 points (compared with 118.2 points in June).”

“The pace of China’s deleveraging program appeared to slow in August – with aggregate financing declining by just 2.4% yoy in the month.”

“Chinese monetary policy has eased in recent months – possibly to provide additional support to the domestic economy. While the 7 day Shanghai Interbank Offered Rate (Shibor) has trended higher since mid-August, it is around 20 basis points below the rates in June – at around 2.65% in early September.”