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China Econometer – October 2018
Wednesday, 14 November 2018 02:18

China Engages Monetary Levers
China’s GDP growth underperformed in Q3 2018, a sign of the continued gradual cooling of the economy and the effects of escalating trade tensions with the US. This has prompted China’s central bank to slash the reserve requirements for banks, freeing extra cash for infrastructure projects and businesses, lowering financing costs and spur growth in the world’s second-largest economy. This injection of cash (around USD175 bn) into the economy will also boost hopes that the negative impact of higher US tariffs on Chinese exports can be eased. China’s expected third-quarter GDP growth would drop to 6.6 percent compared with 6.8 percent a year ago and that its fourth-quarter figure could be as low as 6.4 percent.

Key Economic Indicators
Driven by a steady increase in both food and non-food prices, the expected growth of consumer price index (CPI) for September was 2.5 percent year-on-year. This is a gain on the August level of 2.3 percent year-on-year. Upward pressures on price leading up to the Chinese National holiday and rising crude oil prices globally also contributed to an upward adjustment in prices. Whilst slowing internal demand will place downward pressures on producer price inflation, government interventions will ensure relative stability in this regard. China’s foreign exchange reserves fell by USD 22.69 bn in September to USD 3.09 tn, the biggest drop since February while the value of its gold reserves fell to USD 70.33 bn at the end of September, from USD 71.23 bn at the end of August. A continuous fall in reserves would test the Chinese authorities’ resolve to defend the currency.

China’s export orders hurt by growing trade frictions
Growth in China’s manufacturing sector stalled in September, following 15 months of expansion, as export orders fell the fastest in over two years, suggesting US tariffs are starting to bite the Chinese economy. The official manufacturing purchasing managers index (PMI) stood at 50.8 in September, compared to 51.3 in August (for reference, a reading of 50 is the dividing line between expansion and contraction). The gauge for new export orders in the manufacturing PMI report fell to 48 from 49.4 in August, the fourth consecutive month of contraction, and the lowest reading since February 2016.

Chinese makes strong efforts to support growth
The lack of progress in negotiations between Washington and Beijing over trade tensions suggests that the current roster of tariffs on Chinese exports to the US, worth USD 250 bn, is likely to grow. Policy makers in China have therefore shifted their focus inward in recent months towards growth-promoting measures that would enable China to weather the trade storm. Government has sought to bring financing costs down, boost lending to smaller businesses, cut taxes and fast-track more infrastructure projects. But it will take time for such measures to achieve tangible progress within the slowing economy. Beijing is also persistent in its efforts to stimulate domestic demand to counter the blow from trade shocks.

This article is produced by The Beijing Axis and is published in The Econometer section of ChinAfrica magazine (November 2018), an English and French language monthly publication that provides news, views and analysis on all things China, Africa and China-Africa relations.