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BAD, WORSE, WORST

Three numbers out of China gave investors a big scare today

Reuters
Is a Chinese bear market in sight?
  • Natasha Frost
By Natasha Frost

Reporter

The world’s second-largest economy could be in trouble—and it risks bringing the global economy down with it. That’s the worst-case-scenario conclusion many analysts are tussling with after a slew of bad news out of China.

According to data released today (Jan. 14), China’s exports fell the most in two years last month, with imports also shrinking. Add to that the first instance of China’s car market contracting since the 1990s, and a 73% fall in Chinese investment in North America and Europe, and you have bad, bad news for the global economy.

At the heart of these figures is China’s ongoing trade war with the United States. New data from 2018 reveal the country’s largest trade surplus with the United States since records dating back to 2006 began. It widened by 17% to $323.3 billion last year, according to Reuters. Exports are way up while the country ‘s imports of American goods fell slightly—making a swift resolution to the trade dispute even less likely. (Analysts have posited that this may be the effect of US importers stocking up on Chinese-made products in anticipation of still steeper tariffs.)

The numbers also suggest that the Middle Kingdom’s economy may not be in the best of health, despite government-imposed measures such as tax cuts and higher infrastructure spending. Global demand for Chinese-made goods such as iPhones and automobiles also seems to be waning. There’s still growth, but it’s a fraction of previous years: Geely, the country’s most successful car-maker sold 20% more cars last year, compared to 63% growth in 2017. In 2019, it anticipates flat sales.

A slowing Chinese economy is bad news for US companies that depend on Chinese consumers to power their sales.

Restrictions imposed by China, along with tightened scrutiny of deals from the US, seem to have stymied foreign direct investment into North America and Europe more generally. Overall, Chinese direct investment in the two regions fell 73%, from $111 billion in 2017 to $30 billion last year, despite modest growth in Chinese investment in Germany, France and Spain. Escalating frictions between Washington and Beijing may have been behind an 83% fall in Chinese investment into the US—instead, Chinese investors may be looking to Canada as an alternative, where investment was up 80% from last year.

Any one of these numbers would likely worry investors. All three together suggest a global slowdown that is more imminent than many expected or hoped. In a note from Nomura, a Japanese financial services company, economists had a few forecasts for the months to come: The yuan’s “recent strength” may not last; Beijing may finally capitulate and strike a trade deal with the US; and Chinese politicians may take “more aggressive measures” to stabilize the country’s growth.

Last year, Chinese economic growth hit its lowest point in a decade, exacerbated by ongoing trade tensions and rising debt levels. Whether this slowdown is the start of a larger trend remains to be seen—though the figures have left investors decidedly shaken.

Update: This post has been updated to say China’s imports of US goods fell slightly in 2018. 

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