CHART OF THE WEEK
After a surprisingly buoyant first six months, China’s economic indicators for August came in below expectations, revealing a summer slowdown. The downturn affected industrial production (+6.0% year-on-year in August, compared with +6.4% in July), retail sales (+10.1% compared with +10.4%), and investment (+4.9% compared with +6.8%).
OUR ANALYSIS
August’s faltering economic picture seems partly linked to tighter environmental controls and ongoing supply-side reforms. Production by the most polluting industries and/or those at overcapacity (ferrous and non-ferrous metals, cement, coal, …) has fallen, whereas levels in the exporting sectors are more buoyant (computers, integrated circuits, …). The downturn also seems linked to lower levels of state spending, with the fall in investment stemming from infrastructure projects that depend on the public purse.
Overall, August’s economic slowdown would appear to be to the credit of the Chinese authorities. They have secured enough leeway during the first half of the year to reduce pollution and pursue their reform package without having to deviate from their 6.5% growth target for 2017. In the run-up to the 19th Chinese Communist Party Congress set for 18th October, it is unlikely that the government will increase its efforts, thus avoiding any sharp slowdowns and keeping expectations alive for a recovery in September.
The opinion expressed above is dated 19th September 2017 and is liable to change
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