When China’s National Bureau of Statistics reported that the world’s second-largest economy grew at a faster-than-expected rate of 6.4 per cent in the first quarter compared with the same period in 2018, it was yet another reason for global investors to cheer.
The estimate was announced in mid-April, at a time when senior Chinese and US officials were signalling that the two countries’ year-long trade war was nearing an end.
That optimism is long gone as the NBS prepares to release its estimate for second-quarter economic growth on Monday, which is expected to come in at 6.2 per cent, according to a recent Reuters poll.
After the US-China trade talks fell apart in acrimonious circumstances in the first week of May and both sides increased tariffs on each other’s exports, presidents Donald Trump and Xi Jinping did at least manage to agree to a truce at their meeting on the sidelines of G20 leaders summit in Osaka, Japan.
But no one expects the path to a final trade agreement will be easy given the gulf that was revealed during the breakdown.
Against that backdrop, here are five things to watch out for when the economic data are released.
A possible end-of-quarter growth spurt
First-quarter growth was bolstered by an 8.5 per cent year-on-year increase in industrial production in March, compared with 5.3 per cent in January and February.
The high figure suggested that a combination of easy credit and government stimulus measures were having their intended effect but also raised concerns that a three-year campaign to rein in high debt levels might have been relaxed too early.
There was a similar surge in first-quarter real estate investment, up 11.8 per cent year-on-year, compared with a 9.5 per cent increase in 2018.
Producer price deflation could reappear
Year-on-year factory gate prices were unchanged in June, suggesting China’s industrial sectors could experience deflation for the first time since 2016, as the prolonged trade war with the US continues to damp investor sentiment.
In the latest in a series of confidence-boosting measures, China’s State Council announced on Wednesday it would reduce import tariffs while also boosting rebates and cutting fees for the country’s exporters.
The impact of swine fever on consumer prices
The rapid spread of Asian swine fever has decimated China’s pig herd this year, sending pork prices soaring more than 20 per cent in June. That contributed to consumer price inflation of 2.7 per cent in May and June, a 15-month high.
Some analysts are forecasting that the swine herd in the world’s largest producer and consumer of pork could fall by as much as 80 per cent by the end of 2019, spurring inflation even further.
Pork prices are still about 40 per cent below their all-time record, suggesting they could go much higher if the fever is not contained.
A cut in reserve requirement ratios for banks . . .
The People’s Bank of China has cut the RRR six times over the past year, with banks that have boosted lending to small and medium-sized enterprises and rural areas the biggest beneficiaries.
Rural lenders are now required to meet an RRR of only 8 per cent, compared with 13 per cent and 11.5 per cent for large and medium-sized banks respectively.
and to China’s benchmark interest rate
Ever since China’s vice premier Liu He established himself as China’s most powerful economic official in early 2016, the PBoC has been reluctant to reduce the benchmark for fear of undermining its campaign to reduce financial risks and at least stabilise the country’s overall debt level.
Mr Liu, now a vice premier and also Mr Xi’s lead trade negotiator, was also concerned that a benchmark rate cut could increase depreciation pressure on the renminbi, which has strengthened over recent weeks after threatening to fall through Rmb7 to the dollar, and spur capital flight.
But expectations that the US Federal Reserve will finally respond to Mr Trump’s demand for lower interest rates could give the PBoC greater flexibility if it is worried that economic growth is slowing too rapidly and threatening to undershoot the central government’s year-end growth target of at least 6 per cent.