Regional Analysis China
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China’s central bank announced the elimination of its previous benchmark lending rate as monetary policy rate. Moreover, they made a market-driven Loan Prime Rate (LPR) as the reference rate for banks to price their financial products. It signals the transformation of “dual-track” system to the new “single-track” system.
The Q3 GDP growth slowed to 6% y/y, the lowest growth rate for the past three decades. The prospect of China’s economy hinges on the development of trade talks with the US at the current stage. The two sides recently tried to pursue a partial agreement first and leave the thorny part of negotiation to the next phases.
A batch of August indicators announced today pointed to a significant slowdown in economic activities this summer. Together with the previously released trade and credit data, it suggests that the escalating uncertainties from the US-China trade war dampened people’s confidence and hamper economic expansion.
A batch of July economic indicators are announced today, together with the previously released trade and credit data, suggesting that the growth further decelerated amid the escalation of US-China trade war and the domestic structural obstacles such as debt overhang and financial risks.
The recent sharp depreciation of the RMB is unlikely to lead to financial turmoil like in 2015: the authorities kept the currency’s pricing mechanism intact and have accumulated valuable experience over the past few years; moreover, the PBoC still maintain a tight grip of the country’s capital account.
Last week China’s government announced its GDP figures in the second quarter as well as a batch of activities indicators in June such as industrial production, retail sales and fix-asset investment. These headline figures still look fine.
The better-than-expected economic growth in the first half of 2019 seems transitory. The renewed trade war with the US in Q2 is likely to exert adverse effects on China’s economy over the medium-long term. Moreover, a number of domestic structural factors will continue to weigh on the growth.
The Q2 GDP growth came at 6.2% y/y (versus 6.4% y/y in Q1), in line with market consensus. Growth slowdown in Q2 is widely expected amid the unsettled trade war with the US and the domestic structural obstacles such as debt overhang and financial risks.