Multi-pronged Approach Set to Sustain Growth
the pace of China’s economic growth slowed for a fourth consecutive month in August. This has been largely attributed to the decline in demand from trading partners, most notably, the United States. In response, the government has boosted spending on infrastructure and introduced tax cuts. Another tool enacted by the Chinese Government has been to boost loans to small and medium-sized enterprises (SMES).
Since the trade war began, China shifted its economic focus to improving domestic demand. Coupled with this is a more measured and targeted approach to increased spending on infrastructure development.
Manufacturing Sector Mirrors the Slowing Economy
China’s manufacturing sector has grown at a slow pace for eight months as of July as the demand for exports weakened again. The manufacturing purchasing managers’ index (PMI) showed a decline from 51.5 percent in June to 51.2 percent in July. There are some silver linings for China’s manufacturing sector as stocks of inventories for raw materials improved in July, while employment prospects increased marginally. And, while new export orders were lower, they have stabilized somewhat, which allows policymakers the platform for discussion - but it does reflect the rise in trade tensions with the United States.
Key Economic Indicators Stable
China’s consumer inflation was higher than expected in August, coming in at 2.3 percent, compared with 2.1 percent for July. A rise in food prices, which accounts for nearly one-third of the CPI, has placed upward pressure on this index. Food prices are predicted to have increased by 2.6 percent from July. Meanwhile, China’s producer price index cooled to 4.1 percent in August amid softening domestic demand and expectations of a risky outlook in its trade dispute with the United States. The official PMI rose to 51.3 in August from 51.2 in July and remained above the 50-point mark that separates growth from contraction for the 25th straight month. This is a sign that economic activity is still resilient.
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