China

China’s industry slows at the end of the year

China’s economy has proven to be less immune to the smouldering trade dispute with the United States than the country’s very solid export figures would have led one to expect. The purchasing managers’ surveys carried out in Chinese industry in December were worse than they had been for around three years and this morning they were an unpleasant reminder for financial markets around the globe of the worries about the Chinese economy at the turn of the year 2015/16. Both purchasing managers’ indices – the “official” figure of the National Bureau of Statistics of China and the “unofficial” indicator from the private data provider IHS Markit – fell below the critical 50-point contraction threshold at the end of the year. The last time this happened was in February 2016. Against this background, GDP growth will probably have slowed again in the final quarter of 2018. Sentiment among Chinese purchasing managers…

“Made in China 2025”: China’s strategy for the future – a threat to the industrialised nations?

At least since US President Donald Trump declared punitive customs duties on Chinese imports to be a declaration of war against “Made in China 2025”, China’s project for the future has been widely talked about. The objective of the strategy is to fundamentally modernise China’s industry and to put it in a position to produce the high-tech products that the country has in the past had to import. In principle this is an important, indeed a long overdue, step in the right direction. This is because China’s previous growth model – cheap mass production of relatively simple industrial goods – has become outdated with demographic change and the country’s improved level of prosperity. “Made in China 2025” is based on the concept of “Industry 4.0”, the digitisation and networking of industrial production. It is planned that, by means of digitisation, ten selected key industries in China, including electromobility and robotics,…

China: Growth slowed in Q3 – investments are a brake, impact of trade dispute yet to be felt

China’s economy lost steam again in Q3. With economic growth coming to 6.5 percent, it actually weakened somewhat more strongly than expected. Given the way the trade dispute escalated over the summer, the trend for the Chinese economy is no doubt being followed especially closely at present. However, the cooling of the economy can hardly be attributed to trade with the United States having decelerated growth. At the moment, this is still being overshadowed by other factors having been brought forward and is being cushioned by the devaluation of the Yuan. Instead, it is Beijing’s restraint on the investment front that has squeezed growth. In the current quarter, the strain from foreign trade may well become more clearly noticeable. We feel that all this bears out our cautious growth forecast for this year of 6.5 percent. The monthly export figures for the past months in which US customs tariffs were…

Currency manipulation – the theory and the practice

Soon, the US Department of Treasury will be releasing its six-monthly report on currency manipulation. It establishes to what extent the USA’s major trading partners have gained an advantage by unfairly influencing their currencies. In light of the current trade dispute, the report will no doubt attract even greater attention than usual. If the mere amorphous fear of a further trade-conflict escalation led last Wednesday to strong price falls on the US stock exchanges, then imagine how explosive the ultimate challenge to China on the currency front could potentially be. President Trump does not disguise what his stance on China is; if it were only up to him, then China would already have long since been officially branded a currency manipulator. However, forex issues and thus the report in question do not lie in his hands but in those of the Treasury, and the latter applies a clearly defined, quantitative…

The tariff spiral escalates

US President Trump is further tightening the thumb screws in the trade standoff with China. On Monday 24th September, a new wave of special tariffs is now scheduled to come into effect on USD 200 billion worth of imports from the Middle Kingdom – this is the announcement which came through yesterday evening from the Office of the United States Trade Representative (USTR). These additional tariffs will initially amount to 10 percent, which is lower than for the first two tranches of US punitive measures. The Trump administration has so far slapped extra tariffs of 25 percent on USD 50 billion of Chinese goods. However, the USTR has also announced that the additional punitive tariffs which have just been imposed are to be raised to 25 percent starting January 1, 2019. This means that virtually half of the exports shipped to the United States from the People’s Republic are soon…

Trump’s punitive tariffs not only harmful to China but also the whole of Asia

Until now China’s economy has managed to withstand the imminent burdens of the US-Chinese trade conflict, as indicated in the latest data on economic growth. However, this is likely to change soon as higher tariffs to the tune of USD 250bn – i.e. two percent of the country’s economic output – are imposed on Chinese exports as the next escalation level in the trade dispute with the US takes off. This now represents more than just a slight risk to the country’s economic growth. Exports to the USA will clearly not collapse in full as a result of the import duties, but they can be expected to decline sharply. The extent of this depends above all on how sensitively US consumers and companies react to the increase in prices for imported goods from China. Based on numerous empirical studies, we assume a value of -2 for the so-called price elasticity…

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