China’s Economy Is Slowing

The trade war with the U.S. couldn’t have come at a worse timing for China.

China has only recently begun to focus “in earnest” on addressing some threats in its economy. This according to J.P. Morgan.

Soaring #credit growth is the Achilles’ heel of the Chinese economy.  Chinese banks extended a record 12.65 trillion yuan ($1.88 trillion) in loans in 2016. At that time the government encouraged credit-fueled stimulus to meet its economic growth target. However, the credit explosion stoked worries about financial risks from a rapid build-up in debt. In 2017 pledged to address this.

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Second Quarter GDP Growth

China announced second-quarter GDP growth of 6.7 percent from a year ago. This is slightly lower than 6.8 percent growth in the first quarter of 2018. This is seen as a result of credit and escalating trade tensions with the U.S.

Furthermore, trade tensions between China and the U.S. have weighed on sentiment. This is especially true in the property market. Prices have slowed in first-tier cities such as Beijing and Shanghai.

Beijing’s official GDP figures are closely watched as an indicator of the health of their economy. Nevertheless, many outside experts have long expressed skepticism about the veracity and reliability of China’s reports.

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Global Growth

The campaign to curtail credit is putting the brakes on economic growth in China. China generates as much as a third of global growth. Slowing growth in China suggests that economic expansion is plateauing globally.

Furthermore, while the numbers point to a modest slowdown in China, the U.S.-led trade war has only just begun. U.S. President Donald Trump this month implemented tariffs on an initial $34 billion of imports from China. And China has retaliated in kind. Trump is expected to deliver levies on another $16 billion worth of goods. In addition, he has threatened to expand the hit-list by $200 billion. China has threatened to retaliate again.

That means headwinds not just for China’s economy, but for the world’s too.

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The U.S. Trade Deficit Continues to Expand

Even given the slowdown, China’s monthly trade surplus with the United States has continued to grow.

The trade surplus with the U.S. stood at $28.97 billion, the highest in any month in data back to 1999.

Several factors could have influenced these data, including a rush by some manufacturers to sell goods before tariffs imposed this month hit. Nevertheless, there is little sign that the U.S. deficit with China will improve any time soon.

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