China's GDP Slows, But Should Get Boost from Trade Deal

Figure 1 shows published data for the fourth quarter of 2019. The GDP and industrial production portions of this graph are three-month moving averages. China’s GDP grew at a rate of 6.0 percent in both the third and fourth quarters of 2019, down from 6.8 percent in the first quarter of 2018. Growth has gradually slowed from 9.7 percent in the first quarter of 2011. China’s industrial production gained 6.9 percent year over year in December, up from 6.2 percent in November and 4.7 percent in October. The first phase of the trade deal between China and the U.S. is expected to provide a boost in activity and investment across China’s industries.

On Jan 16, Xiao Chun Xu, an analyst with Economy.com, wrote: “The Chinese economy maintained its growth at 6% in the fourth quarter, unchanged from the historically low rate in the previous quarter. This was broadly within our expectations as the Chinese economy faced headwinds from both external demand, from the trade war and slowdown of global demand, and internal demand, especially relating to investment. The Phase One trade deal allows China to dodge further tariffs, which should meaningfully settle investor risk aversion and boost the economy in the first half of 2020. However, the threat of a re-escalation still looms, and incentivizing Chinese authorities to uphold agreements made in the deal.”

Figure 2 shows the growth of fixed asset investment year over year. Growth was 5.4 percent, which results in a doubling of investment in 13.3 years.

On Jan. 16, Moody’s Analytics wrote: “Fixed asset investment in China grew by 5.4% year over year in December, a marginal improvement from November’s 5.2% increase. Similar to previous months, growth was spurred mainly by the mining industry, while agriculture and manufacturing stayed soft. Manufacturing was driven by increases in electronic products (16.8%), special equipment manufacturing (9.7%) and pharmaceuticals (8.4%).”

Figure 3 shows the 3MMA of China’s crude steel production through November when it accounted for 54.3 percent of global production.

Figure 4 shows the year-over-year growth of China’s steel production. Growth slowed every month on June through November, but is still positive as the rest of the world slid into contraction in October and November.