China has been one of the world’s fastest growing major economies in the past decades. This year, 2018, will be a turning point, when its government figures show more negative signs and its industries are truly starting to lose steam.
Official data for July showed a slowdown in investment, factory production and retail sales.
The trade war with the United States is also a worry, the biggest worry is said to be the property bubble. As the US trade tensions intensify, signs of further weakness are multiplying.
China has been accused of violating WTO rules. According to South China Morning Post, the International Monetary Fund (IMF) has urged China to adopt further steps to open its market, disagreeing with Beijing’s assessment of the country’s progress in reforming state-owned enterprises, reducing trade and investment restrictions and its efforts to reduce government debt.
China’s growth relies a lot on cheap exports to foreign countries, especially the United States. The country’s worsening conditions and increasing costs have pushed more and more companies out. In the past few years, China-based manufacturers have been in the process of moving to Southeast Asia, and they are shifting their whole supply chain as trade tariffs have been enacted on at least $50 billion worth of goods, and another $200 billion likely soon.
According to Bloomberg, “With recent tariff battles, companies aren’t as eager to have production in China,” says Nathan Resnick, CEO of start-up company Sourcify. The business-to-business manufacturing platform has offices in San Diego and Guangzhou. “We run production runs in India, Bangladesh, Vietnam, Philippines and Mexico right now. Labor costs are actually more affordable outside of China, so for products like apparel where there is a lot of cut-and-sew labor, most companies are moving out of China anyway.”
Asked by President Donald Trump to assess China’s prospects at a cabinet meeting, Kudlow on Thursday asserted that “their economy is just heading south. Business investment is just collapsing.”
Larry Kudlow says the Chinese economy “looks terrible.” “People are selling their currency… investors are moving out of China because they don’t like the economy, and they’re coming to the USA because they like our economy.”
Beijing knows its own vulnerability and has begged the White House to come back on the talk table, but as it has been expected, officials from both sides ended two days of talks on Thursday with no major breakthrough.
As a result of trade tensions, China’s stock market has lost 20% of its value in the past months.
Economists reckon that every $100 billion of imports hit by tariffs would reduce global trade by around 0.5 percent. “They have assumed a direct impact on China’s economic growth in 2018 of 0.1 to 0.3 percentage point, and the impact will be bigger next year,” according to CNBC.
Have a look at overseas, also a bear market.
Alibaba shares fell more than 3 percent in New York trading Thursday after reporting disappointing earnings. Baidu fell more than 1.5 percent and is down 22.8 percent from a recent high. JD.com is also in a bear market, off 38 percent from a recent high. The stock closed 2.9 percent lower Thursday.
China’s retail markets are clearly marked, with Alibaba and JD becoming overwhelmingly dominant, small players and late comers in a difficult position to get a bite of the cake.
“Global retailers hoping to get into China’s lucrative consumer market have little choice but to partner with online giants Alibaba or Tencent”, a partner at Bain & Company told CNBC.
The arrogance of Chinese economic expansion has been met with rebuke overseas.
This week, Huawei is blocked out of the 5G network in Australia, though its 4G interests remain unaffected. Vodafone says the decision “fundamentally undermines Australia’s 5G future”. China’s ministry of commerce said “new rules that exclude Huawei and ZTE from participating in 5G networks would have a negative impact on Australian and Chinese companies.”
Since April, its currency, the yuan, has shed about 9% versus the US dollar and the country has seen a stepping up capital flight.
China’s economy will face more challenges both home and abroad in the coming months although Beijing is looking for ways to pump up the growth.
One of the measures, the People’s Bank of China has started to inject more sums into the financial system by providing new loans and reducing the amount of deposits commercial lenders are required to hold.
But the already heavily debt-laden economy will experience more risks.
“We aren’t talking about massive stimulus, nor do we want to incur financial risks, let alone getting the government to take care of everything,” Finance Minister Liu Kun said in an interview Thursday with Reuters.
Followcn Staff Editor