August 10, 2018

News in Charts: China Prioritizes Short-Term Growth

by Fathom Consulting.

Fathom’s measure of economic activity in China — the CMI — stood at 6.5% in June, unchanged from the revised May reading, but below both its recent peak and official GDP estimates. After months of waning momentum, this steadying may reflect China’s recent efforts to support the economy through monetary stimulus, a sign that it is again doubling down on its old growth model.

Refresh the chart in your browser Edit chart in Datastream

Faced with slowing growth and escalating trade tensions, we correctly predicted that China would also allow its currency to weaken, with a forecast of 6.8 against the US dollar by the end of 2018. Using that lever destabilised markets in 2015 — causing a sell-off of more than $1trillion of foreign exchange reserves by China’s Central Bank to offset the downward pressure on the renminbi. So it is of little surprise that the authorities are treading carefully, allowing the renminbi to depreciate, albeit not as abruptly, or indeed by as much as the offshore renminbi rate (which is not subject to the central bank’s trading band) implies.

Refresh the chart in your browser Edit chart in Datastream

 

Refresh the chart in your browser Edit chart in Datastream

However, this strategy only adds to China’s imbalances, storing up problems for the future. Moreover, it will undoubtedly aggravate President Trump who has repeatedly accused China of deliberately weakening its currency to boost exports. The latest trade data showed that the pace of export growth from China to the US remains in double digits. On the other hand, it favors some countries, with the Philippines, Cambodia, Japan and India all notable beneficiaries under China’s current growth strategy of doubling down.

Refresh the chart in your browser Edit chart in Datastream

______________________________________________________________________

Thomson Reuters Datastream

Financial time series database which allows you to identify and examine trends, generate and test ideas and develop view points on the market.

Thomson Reuters offers the world’s most comprehensive historical database for numerical macroeconomic and cross-asset financial data which started in the 1950s and has grown into an indispensable resource for financial professionals. Find out more.

Get In Touch

Subscribe