The much-anticipated meeting between US President Trump and Chinese President at the G-20 in Argentina is here and there are many analysts who hold very different views on the scenarios – some saying that a trade deal is on the table or follow-up meeting will usher in a deal, while others are saying that the problems between the US and China are too deep and too complex to fix in just one or two years. Expectations are that these trade war will only intensify and continue for the next 2 to 3 years. While China seems to be redirecting its trade to other US partners, taking some of the natural support from the Trump White House, focus has increased with regards to the Chinese domestic economy. There are growing concerns that China, while pivoting from an export driven economy to a domestic demand entity, is overseeing an economy that is slowing down under the weight of debt, a real estate bubble and the most recent tariffs imposed by the Trump Administration.
The China PMI or Purchasing Managers` Index fell to 50.0 in November from 50.2 in October as Beijing seems ready to roll out more economic measures to prop up the slowing economy. We at Classiarius feel that the 5.7% growth rate will fade to 5.2% or lower in the coming year, 2019. The manufacturing sector, as measured in the PMI release, stalled for the first time in over two years. This release and the prospects of a slowing economy add meaning to the slowdown. Note that the 50 level is neutral but anything below 50 is a sector in contraction with a reading over 50 moving into expansion. The slowing economy is China and the falling stock market has the US President making victory laps and of course he has threatened to hike tariffs on anther $267 billion of goods if the meeting with Xi does not bring positive results.
New export orders shrank for the sixth straight month, with this sub-index falling from 47.6 in October to the current 47.1. Of course, the export market has been strong in China lately as many firms rush to produce and ship goods before the US tariffs take hold. Both PMI and service sector indices are more moderate, falling together slowly.