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By Morgan Brady

BT 201902 Economy 01贸易战的压力开始展现





The Gregorian calendar year has been concluded and all the economic data from 2018 can now be put into perspective. In 2018, China’s trade surplus with the United States has reached an all-time high, at $323.32 billion – a growth of 17%. This number may be even lower than the actual number, since indirect Chinese exports through other countries to the US are not accounted for. With the world, China’s trade surplus reached US$351.76 billion in 2018.

BT 201902 Economy 02Weaker trade performance
The trade data showed a decline in both Chinese exports and imports in December. This shows that China is starting to feel the pinch of the trade war. According to data from China’s General Administration of Customs, total exports fell to US$221.25 billion, down 1.4 per cent from November and 4.4 per cent from the same month in 2017. Total imports, on the other hand, dropped to US$164.19 billion in December, a large decline of 10% from the month before, and a 7.6% drop from the last year. The decline in foreign trade is set to affect private companies more than state-owned ones, given that they are more oriented towards producing goods for the outside world, and thus are sensitive to geopolitical tensions and growth trends outside of China.

BT 201902 Economy 03A trade-war truce
The United States and China had agreed on a trade war truce on the 1st of December to last for 90 days. The truce will end on the 1st of March. Yet, the moral impact of the trade may exceed that of the material impact, and thus a short-term truce may not produce substantial results, given the current sentiment as indicated by the PMI, which showed that manufacturing activity contracted last month for the first time in 19 months, as inbound and outbound trade with the outside world declines.

It is worth noting that the situation in the US economy is uncertain. American equities suffered in the fourth quarter of 2018 and there are signs to say that growth over the long term is not guaranteed. Thus, the impact of the trade-war with the US may decline over the long term.

Less optimistic outlook
The final GDP figures for the full year are yet to be released on the 21st of January, but according to predictions by Economic Information Daily, Xiamen University and the University of London a growth rate of 6.6% is expected. Although this is a positive growth rate by western standards of a single digit growth, it remains very low given China’s performance in the last decades. This rate is the weakest in a long period, and a weaker growth rate of 6.3% is expected in 2019, according to some analysts.

BT 201902 Economy 04Weaker economic performance
November data had shown a decline in the growth of retail sales, reaching the slowest growth rate since 2003. Industrial output growth was also at its slowest pace in three years, signalling an expected decline in demand and worsening economic outlook among both consumers and producers alike. Thus, economists are waiting patiently for retail sales growth about December to get a pulse of the economic situation.

The growth in retail sales of consumer goods throughout the entire year is expected to be around 9.34%, which is slightly lower than the previous year, whereas the growth of CPI is expected to be 2.09% (0.49% over the previous year). PPI growth is projected at 3.09%, which is a considerable drop of 3.21 from last year.

The World Bank provided an update about the Chinese economy in December, pointing to its resilience, and predicting that the growth rate in 2019 will be 6.2%. In 2018, equity prices declined by 20% and the renminbi lost 6% of its value against the dollar.

BT 201902 Economy 05A short-term cushion of savings
Although many economists expect a slowdown in the Chinese economy, one cushion could actually prove to be a useful mechanism to stimulate the economy. The percentage of consumption in China’s GDP is quite low in comparison with western economies, and Chinese consumers have higher savings, which they may use in case of economic slowdown. This can help counter economic disruptions and stabilize domestic demand. But effective strategies need to be implemented over the long term.

Data releases regarding economic performance in December were weaker than analysts had hoped for. Both exports and imports are declining, and manufacturing activity is slowing down. However, the savings could provide a good refuge over the short term, albeit that demand for less elastic commodities will be more stable than more elastic commodities when considering income elasticity. The measures that the government is taking can also provide another layer of support over the long term. Those measures include increasing the liquidity to People’s bank of China, infrastructure investment, fiscal incentives for households and firms, and more support to small businesses. Despite the current challenges, the economy is still resilient and growing, albeit at a slower rate. The developments in 2019 are yet to be fully seen, and it is too early to predict a too pessimistic or optimistic scenario.

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