Fears over Chinese economy as key indicators point to slowdown

A number of key indicators on the Chinese economy released this week highlight multi-year or record lows across industrial, construction and retail sectors – prompting concerns about the robustness of the world’s second-largest economy. The slowdown comes after the crackdown on risky lending practices that has caused borrowing costs to increase, the Straits Times reports.

Additionally, in a surprise decision by the People’s Bank of China, interest rates were kept on hold. Usually the People’s Bank of China moves its rates in line with the US, in order to release pressure from the Yuan and minimise capital outflows. The decision to leave rates unchanged surprised the market and spurred further concern over the state of the Chinese economy.

Fixed asset investment – used as an indication of infrastructure spending and the biggest driver of China’s economy – fell from 7 percent growth in April to 6.1 percent growth in May, below market forecasts. This is the slowest growth since 1996 when the National Bureau of Statistics records begun. Industrial production grew at a 22-year low, at 6.8 percent for the first five months of the year. Retail sales – a key measure of consumer spending – fell from 10 percent in April to 8.5 percent in May, which is the slowest growth since 2003.

ABC News reports Rabobank economists as saying this growth is “shockingly weak by Chinese standards.”

The regulatory reform in China has focused largely on the banking sector rather than corporate debt reduction or deleveraging. This data suggests, however, that the effects of China’s attempts to reduce debt levels and crackdown on shadow banking activity are starting to trickle down throughout the broader economy. According to the South China Morning Post, it is also drying up funding for many infrastructure projects. Chinese and Hong Kong stocks were also hit on Thursday as a result, according to Reuters.

Based on this data, China’s weak credit growth and the concern over US tariffs on billions of dollars worth of Chinese goods, investment and growth are likely to slow in the second half of 2018. This could also have implications for China’s economic reform process, however, as a China economist from ANZ was quoted as saying by Reuters, “if there is a very large downside risk to the economy, the government is fully capable of propping it up again”.