China’s industrial engine rebounded strongly last month, amid surprisingly good economic numbers

Industrial production, which measures China’s industrial output, including manufacturing, mining and utilities, grew by 6.2 per cent in November
Retail sales also performed better than expected, as the Chinese economy surprised on the upside in the last month before a trade deal was reached

China economy

Finbarr BerminghamandOrange Wang

Published: 10:02am, 16 Dec, 2019

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China’s industrial economy rebounded strongly in November, in the last month before a trade deal was reached with the United States that will provide some well-needed tariff relief.

Industrial production, which measures China’s industrial output, including manufacturing, mining and utilities, grew by 6.2 per cent in November, a big improvement on October’s 4.7 per cent growth, which was the second lowest since 2002.

This was well above a poll of analysts quizzed by Bloomberg, which had forecast 5.0 per cent growth. It was the highest growth since June.

Retail sales, a key measure of consumption in the world’s most populous nation, grew by 8.0 per cent in November, up from 7.2 per cent in October and again higher than the Bloomberg poll, which expected 7.6 per cent growth.

Another key indicator of the health of China’s economy, fixed asset investment, grew by 5.2 per cent in the year-to-date to November. This maintains the lowest monthly investment ever reported in China in October, which has led to fears over confidence and resilience in the Chinese economy.

The numbers will be welcomed in Beijing, with the economy having been under severe pressure over the course of 2019. The trade war with the US has clearly acted as a drag on manufacturing and exports, but after a deal was reached to offer some tariff rollback and the indefinite postponement of new tariffs by both sides, firms might hope for some stability in the coming months.

“Downward pressure on growth is likely to resurface before long,” said Martin Lynge Rasmussen, a China economist at Capital Economics. “Admittedly, the phase one US-China trade deal could boost both export activity and corporate investment in the near term. But real estate, a key prop to growth in recent quarters, is primed for a moderation as financing to the sector is being squeezed by a regulatory crackdown.”

Within the industrial production figures, released by the national Bureau of Statistics (NBS) on Monday, manufacturing grew by 6.3 per cent, with hi-tech and equipment manufacturing surging by 8.9 per cent and 8.5 per cent, respectively.

The industrial output recovery last month was mainly driven by private firms, with state companies continuing to be a drag on growth, the data showed.

A statement accompanying the release said that “major economic indicators performed better than expected … in the face of mounting risks and challenges both at home and abroad”.

Key to Beijing in the trade deal with the US was the cancellation of Sunday’s planned 15 per cent tariff on roughly US$160 billion of mainly high-end exports. Furthermore, a 15 per cent tariff on US$120 billion of Chinese goods will be halved to 7.5 per cent, however a 25 per cent tariff on a further US$250 billion will remain in place.

China and the US agreed on the text of the phase one deal, that will reduce uncertainty in the market, and the enhanced confidence is meaningful for the global economy and trade

Fu Linghui

“China and the US agreed on the text of the phase one deal, that will reduce uncertainty in the market, and the enhanced confidence is meaningful for the global economy and trade. We hope the two side can continue step-by-step negotiations, to gradually roll back or even fully roll back the additional tariffs,” said Fu Linghui, a spokesman for the NBS, at a press conference in Beijing on Monday.

In an interview on Sunday, US trade representative Robert Lighthizer said that US exports to China will “nearly double” over the next two years, with China agreeing to purchase between US$40 billion and US$50 billion of American goods.

This could be a support for consumption in China, with the prices of all meat products skyrocketing in the face of an African swine fever crisis that could wipe out half the country’s pig population. In November alone, pork prices shot up 110 per cent on a year earlier.

While soybeans and grains are likely to form the cornerstone of agricultural purchases, the reintroduction of US pork to the market after it was subjected to trade war tariffs higher than 62 per cent may help add some supply to ease the price-point. China has not said that it will remove existing tariffs, but has pledge to make substantial purchases.

Many analysts have pointed out that the indirect impact of the trade war on investor sentiment has been greater than the direct impact.

Indeed, the sluggish 5.2 per cent growth in fixed assets in China, such as property, real estate, premises and equipment, suggest that this remains the case. Furthermore, the volatility of US-China relations means that while most investors will welcome a deal, whether it will be enough to encourage long-term outlays remains to be seen.

“We see the bilateral agreement as an opportunity to reach a less turbulent time in trade, or what we called ‘the eye of the trade war storm’. It is a laudable move for both countries to work out these concessions that will lead to a truce. However, we acknowledge the risk that this ceasefire period does not remain eventless in the run up of the US presidential election,” said Helen Qiao, China economist at the Bank of America.

This article appeared in the South China Morning Post print edition as: Industrial engine beats forecast with economic data strong across board

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China’s industrial engine ﻿rebounded strongly last month, amid surprisingly good economic numbers

China’s industrial engine rebounded strongly last month, amid surprisingly good economic numbers