China: Industrial sector stabilising – NAB

Gerard Burg, senior economist at National Australia Bank, points out that the “Phase One” trade deal between the US and China has now been concluded with an official signing to occur in January.

Key Quotes

“The deal will see US tariffs that had been scheduled for implementation on 15 December suspended, and the rate on those imposed in September halved (from 15% to 7.5%). China has reportedly agreed to purchase agricultural goods worth around US$40 billion from the US (a figure many observers have doubted is actually possible). The limited rollback of tariffs suggests that this is more of a ceasefire than a resolution to the trade dispute, and risks of further escalation persist.”

“Although the “Phase One” trade deal between the US and China should provide some greater clarity around the relationship between the two countries, the improvement is modest. Despite the halving in the tariffs imposed in September, China’s manufacturers still face a more negative trade environment than they did in August this year. Our outlook for China’s economic growth is unchanged – with growth at 5.9% in 2020 and 5.8% in 2021.”

“China’s industrial production grew more rapidly in November 2019, increasing by 6.2% yoy (up from a particularly weak 4.7% yoy in October).”

“Fixed asset investment growth accelerated in November – up to 5.2% yoy in nominal terms (compared with 3.7% in October).”

“China’s trade surplus was slightly narrower in November – down to US$38.7 billion (from US$42.5 billion previously) – as the month-on-month increase in imports exceeded the increase in exports.”

“China’s producer prices continued to fall in November – albeit slightly less rapidly than in October. The Producer Price Index declined by 1.4% yoy in November (compared with 1.6% previously).”

“China’s recently adopted monetary policy benchmark – the Loan Prime Rate (LPR) – edged lower in mid-November, down 5 basis points to 4.15%.”