Policy Stimulus Bears Fruit
in the second quarter of 2018, the Chinese economy grew at 6.7 percent which is in line with expectations and marginally slower than the 6.8-percent growth recorded in the previous three quarters. Growth during the first half this year also stands at 6.7 percent. Amidst the ongoing trade war with the United States, as of July 27, the renminbi (RMB) has fallen 8.2 percent against the dollar since April 2. Having fallen below 3,000 in June for the first time in two years, Shanghai Stock Exchange Composite Index made minor gains in July after the government injected some fresh cash to boost the economy. However, it was still at 2,869 on July 30. The Chinese Government bond also rose in July due to the policy stimulus with the 10-year yield going above the 3.5-percent mark again. Foreign direct investment into China rose by 1.1 percent year on year during the first half of 2018.
H1 2018 Trade Strong Despite U.S. Pressures
While the U.s.-china trade tensions are a significant concern going for the second half this year, analysts report that China’s trade continued to see growth in trade during the first half. Overall trade for the first half of 2018 stood at 14.12 trillion yuan ($2.09 trillion), a year-on-year increase of 7.9 percent. In the same period, exports rose 4.9 percent year on year while imports grew 11.5 percent, representing a decrease in the balance of trade of 26.7 percent. The growth in domestic demand of 7.5 percent over this period is a core driver of the rapid growth in imports, leading to the decline in net exports.
Key Economic Indicators Stable
Growth in China’s consumer inflation slightly outpaced expectations in July, coming in 2.1 percent higher than July of last year. Meanwhile, China’s producer price index inched slightly lower than June, coming in at 4.6 percent. The official manufacturing purchasing managers’ index came in at 51.2, down from 51.5 in June, but still well into the expansionary range. Besides February, (which is regularly low due to the Chinese New Year holiday), this is the lowest level in over a year, since May of 2017. China’s National Bureau of Statistics said in a statement that unseasonably high temperatures and rain, coupled with trade tensions, were to blame for the downturn in manufacturing growth. Trade tensions continue to cause some concern, as they were also the reason cited for the slowdown in GDP growth in the second quarter.
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