Macroscope | If the US-China trade war worsens in 2019, China’s economic policymakers will have to act

China’s economic data for October, released over the past two weeks, paints a relatively stable macro picture for now. However, with a storm lurking on the horizon, Beijing does not have the luxury of complacency and must do more to support the economy if the trade conflict with the US escalates in early 2019.

Delving into the details, recent economic data contains a mixture of surprises. On the positive side, trade activity has remained robust, despite all the concerns about the Sino-US trade war. While continuous front-loading purchases from the United States have clearly helped, the broad-based nature of growth suggests something else is at play. The weaker yuan, policy support in the form of tax rebates and genuine strength in global demand could all have contributed to the buoyant export performance.

In contrast with the solid trade figures, most domestic indicators have been in line with market expectations. Industrial production growth in October rose slightly, to 5.9 per cent year on year from 5.8 per cent in September. Apart from a smaller drag from auto production, infrastructure-related activities, such as steel, cement and glass production, have all registered better growth, suggesting that the fiscal stimulus might have started to kick in.