China: Strong economic data vibes - BBH

China reported stronger than expected June IP, retail sales and Q2 GDP and is often the first country to report its quarterly growth figure, which rarely deviates from expectations, explains the analysis team at BBH.  

Key Quotes

“GDP growth was steady at 6.9% y/y, which should help underpin regional growth.  Of course, no one expects anything untoward to happen in the economy this side of the high-stakes Party Congress in the fall.”

“Perhaps of greater interest than China's economic data, which is often seen through the proverbial jaundiced eye, is the end of the 100-day US-China trade talks.  There is some indication that this deal-oriented phase can be extended by as long as a year.  China has made several concessions to the US, especially in agriculture, and several new deals have been signed, including for soybeans, pork, and beef (for the first time in 14 years). Reports also indicate a more expedited path for biotech products and a likely increase in US natural gas sales.”

“Even though these measures will do very little to reduce the substantial bilateral deficit, the deals appear to have won some good will from the Trump Administration.  The Comprehensive Economic Dialogue, which replaces/renames the previous Strategic Economic Dialogue, holds new talks between US Treasury Secretary Mnuchin and China's Vice Premier Wang Yang.”

“We remain concerned that frustrations in other areas could prompt a more combative approach in areas where the US Administration has great discretion.  The US expresses frustration over the lack of sufficient Chinese pressure on North Korea, but agrees to a new high-level arms sale to Taiwan, threatens steel tariffs, sanctions Chinese individuals with business ties to North Korea, and asserts freedom of navigation in a project of both naval and aerial force.”  

“The yuan has appreciated by about 2.5% against the dollar so far this year.  Its reserves have grown for five consecutive months through June, which allows it to return to buying foreign bonds, including US Treasuries. Its trade policies are very much disputed, and the US has scores of anti-dumping duties and levies a range of Chinese products, but presently, as a source of disruption to the global financial markets, the mini-taper tantrum from Europe and the uncertainty surrounding US fiscal policy are eclipsing China.”