China Enters 2020 Still (Intent On) Managing Its Decline

Chinese Industrial Production accelerated further in December 2019, rising 6.9% year-over-year according to today’s estimates from China’s National Bureau of Statistics (NBS). That was a full percentage point above consensus. IP had bottomed outright in August at a record low 4.4%, and then, just as this wave of renewed optimism swept the world, it has rebounded alongside it.

Rather than suggest the global economy is picking up or ended last year in a “good place” when placed in the context of the rest of China’s economic numbers we are left with the impression of an isolated instance. Perhaps a sugar high as any number of firms rushed to overproduce in order to get product in and out ahead of the expected imposition of new tariffs and restrictions.

While IP has been higher, conspicuously so, Chinese retail sales have not. Up from a record low of 7.2% in October, but unlike IP not by that much. The NBS estimates that retail sales increased by 8% year-over-year for the second straight month in December.

As a result of this continuing string of historic weakness, the 6-month average is now the lowest on record.

Because of that bump in IP as well as a similar (and questionable) acceleration in Private FAI, real GDP in the fourth quarter stabilized. But “stabilize” actually means contraction in terms of China’s economy, and therefore it won’t stay stable for long. The system requires some meaningful stability, which means rapid acceleration and therefore something more than narrative.

Following a 6.0% year-over-year increase in Q3, in Q4 it was another quarter matching a modern low.

In more important nominal terms, Chinese GDP decelerated again. From just above 10% in Q2 2018, once CNY fell so has nominal output. There had been a minor rebound in Q2 2019, where the growth rate accelerated modestly (while commentary at the time was anything but modest about it) to 8.3% from 7.8% in Q1, but over the last half of last year the second-half rebound never showed up.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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