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Fast Comment ChinaThe economy slows further down

  1. Most activity indicators fell again in November
  2. Fixed investments helped by stimuli
  3. Stimuli not enough to avoid further slowdown
Most activity indicators fell again in November
China’s economy still seems to be slowing down amid trade war concerns and past deleveraging efforts. Retail sales growth fell markedly and more than expected from 8.6 percent y-o-y in October to 8.1 percent in November. The weak retail sales figures are among other things due to a further weakening of car sales, as the tax cuts on cars from 2016-17 have been rolled back. New cuts have been announced, but have not yet kicked in. Retail sales growth fell despite that it were supported by record sales on “Singles’ Day”, China’s biggest shopping day on November 11. Growth of industrial production also fell (from 5.9 percent y-o-y to 5.4 percent) against expectations of unchanged growth. Growth fell even though production should have been supported also in November by that exports to the US has been moved forward in anticipation of the expected hike of US import tariffs at year-end. This hike has now been cancelled / postponed at the meeting between Trump and Xi. But since the meeting took place on December 1, the decision should not have affected the November data.
Fixed investments helped by stimuli
The only bright spot in the November data was fixed asset investment growth which only fell slightly in y-o-y terms (see first chart). This is a sign that economic stimuli are taking effect. Whereas growth of (policy-induced) investments in infrastructure fell somewhat following the strong rebound in September and October, growth of property construction investment and investments among industrial companies increased (see second chart).
Stimuli not enough to avoid further slowdown
We expect more stimuli to be announced soon, which will mitigate and smooth the growth slowdown but not halt it entirely. We see GDP growth slowing to 6.0 percent next year. Thus, the official growth target will have to be lowered from this year’s 6.5 percent, or at least made more flexible in 2019. The target will very likely be decided upon at the Central Economic Work Conference in mid-December. The new target is usually not officially published until March, but might be disclosed in the media before then.



Bjarke Roed-Frederiksen

Senior Economist

Latin America and China

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