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ITR Experts Say: Keep Your Eyes on China

The Chinese industrial economy is in a negative cyclical trend. China Industrial Production, ITR’s benchmark for economic activity in the country, was 6.3% above the year-ago level for the 12 months ending in November. This marks the slowest pace of expansion in over 20 months and represents a noticeable cooling off from an early-2018 peak rate of growth. Furthermore, the month-over-month and quarter-over-quarter growth rates are even weaker, at 5.4% and 5.7%, respectively. These negative ITR Checking Points™ indicate that Chinese industrial growth will decelerate further in the months to come.

Other metrics also point to a marked slowdown in the Chinese industrial economy. China Power Generation is up just 5.8% for the three months ending in November when compared to the same three months from the previous year. This is a notable slowdown relative to the 10.3% peak growth rate that occurred last February. China Railway Freight Carried, which represents the movement of goods within the country, is also pointing to weaker economic conditions. For the 12 months through November, Freight was up 6.2% compared to the same time last year, less than half the most recent growth-rate peak of 15.7% that occurred in September of 2017.

An analysis of the latest trade data also points to clouds gathering on the horizon. China Exports rose to a record high of $2.51 trillion for the 12 months ending in November of 2018, an increase of 11.3% over the year-ago level. However, the December preliminary data was much less positive, with Exports falling 4.4% compared to the same month a year earlier. China Imports, which are also at a record high and up by a double-digit rate on a year-over-year basis, dropped 7.6 percent in December relative to the same month last year. Both data points represent the worst results since 2016.

So, what does this mean to you? If your business has a direct presence in China, you must understand your own cyclical relationship to the Chinese economy and its underlying markets. If you correlate well, then prepare yourself for slower times ahead. If you serve the Chinese market indirectly or have customers that are involved with China in some fashion, you must also analyze the impact of the economic slowdown and develop an action plan to be implemented in the event things gets worse.

Finally, stay informed. Read the latest ITR Advisor™ topical article for further details on the latest developments in the Chinese industrial economy. Better yet, contact us for some practical and action-oriented advice for navigating the headwinds facing your business in 2019.

Alex Chausovsky
Director of Speaking Services