Chinese growth momentum moderates

Growth momentum in China has softened a bit after a strong first quarter. Meanwhile, US-China trade relations look like they might be improving.



Economic indicators for April point to some softening in growth momentum in China. Hard data confirm the moderation seen in manufacturing and non-manufacturing PMIs released earlier this month, and the direction of change is consistent with our expectation that Q1 marked the peak of growth momentum in China for 2017.

In our view, the deceleration in growth momentum was mainly driven by the slowdown in domestic fixed investment and related industrial activities. While the growth in exports also showed some softness in April, improvement in global demand may continue to provide support to China’s export sector. Meanwhile, trade negotiations between the US and China seem to have made some significant progress. Four months into his presidency, it turns out that Donald Trump is taking a much more practical approach on trade-related issues than the rhetoric of his election campaign might have suggested. Contrary to his promises, China has not been listed as a currency manipulator, and no punitive tariffs have been imposed on Chinese goods so far.

Following the April meeting between President Trump and President Xi, China has agreed to open its market to various US exports such as beef and liquefied natural gas. In addition, wider market access will be granted to US companies in the financial services sector, including credit rating agencies and bond underwriters. News from the ‘100-Day US-China Comprehensive Economic Dialogue’ suggest that the tensions in US-China trade relations have fallen significantly, removing one of the key risks hanging over the Chinese economy in 2017.

Looking ahead, we expect the property sector to have a more noticeably negative impact on growth, especially in the second half of 2017. But with tensions subsiding in US-China trade relations and a supportive global demand environment, we expect China’s export sector to continue to see moderate improvement going forward. For now, we are keeping our forecast of Chinese GDP for 2017 at 6.5%.

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