More Signs of an Economic Slowdown in China?

It’s been over a month since I’ve written an economic roundup on China so I think it’s about time we have another data review on the world’s second largest economy. Have there been any improvements lately?

Inflation

Fresh off the press in today’s Asian trading session are the latest Chinese inflation figures, which reflected weak price pressures. The headline CPI slipped from 2.0% to 1.6%, lower than the estimated 1.7% reading for September. This marks a considerable drop from the 2.5% annual inflation figure recorded last May, as price levels were dragged down by falling commodity prices in the past few months.

The producer price index (PPI), which is considered a leading indicator of consumer inflation, also printed weaker than expected results. For the month of September, producer prices chalked up a 1.8% year-over-year decline, worse than the projected 1.4% drop. This has mostly been spurred by overcapacity and a slowdown in global demand – two factors that could continue to weigh on inflationary pressures later on.

Business Conditions

The latest Chinese PMI readings haven’t been so bleak on the surface level, with the official manufacturing PMI unchanged at 51.1 and the HSBC manufacturing PMI holding steady at 50.2 for September.

china economy slowdown

More economic headwinds in sight?

A closer look into the components of the report, however, reveals weak spots in the jobs sector. In particular, the employment sub-index logged in a sharp decline to 46.9, its lowest level since February 2009.

Meanwhile, the non-manufacturing sector showed a slower pace of expansion in the same month, as the HSBC services PMI slipped from 54.1 to 53.5. The composite employment index of this report marked back-to-back monthly declines, suggesting that the slowdown in activity is taking its toll on payrolls.

Trade Activity

Earlier this week, China printed a much weaker than expected trade balance, as the surplus narrowed from 49.8 billion USD in August to 31.0 billion USD in September. But before you dismiss this as another piece of disappointing data from China, y’all should know that both imports and exports actually posted strong increases.

Exports rose by an annualized 15.3%, its fastest growth since February 2013, while imports picked up by 7% and reflected a jump in domestic demand. Wanna know what caused this sudden surge in shipments? It’s the iPhone 6!

Customs officials noted that the iPhone 6 had “positive impacts on processing trade,” with a report by a state news agency indicating that the iPhone factory in Zhengzhou exported 6.22 million units last month. Economic experts even estimated that iPhone shipments could continue to keep Chinese trade activity afloat until the end of this year. Take note though that concerns have been raised on invoice discrepancies, casting doubts on whether the trade inflows are real or overstated.

Overall, economic data from China has failed to impress once more, adding fuel to speculations that another major slowdown might be seen sooner or later. Chinese government officials are hoping to see more aggressive efforts from the central bank to boost growth and they seem to think that a PBoC leadership shake up might do the trick. Otherwise, another downturn in the world’s second largest economy might wind up dampening risk appetite later on.

Do you think China is in for a deeper economic slowdown? Share your thoughts in our comment box or cast your votes in our poll below!