In 2019, China's year-on-year economic growth rate in the first three quarters was 6.4%, 6.2%, and 6.0% respectively. If such trend continues, it is highly probable that in the fourth quarter the economic growth rate will fall below 6%. Now, the Fourth Plenary Session of the 19th CPC Central Committee has just concluded, and the basic guiding ideology that emphasizes on institutional authority has been determined. After further strengthening the institutional framework for political stability, it is almost certain that the next priority of the Chinese government will be on stabilizing its economic growth.
ANBOUND’s research team believes that in the remaining two months of 2019, China has two major things that need to be done well. Firstly, China needs to steadily promote the U.S.-China trade negotiations, and strive to strike an agreement in the first phase, followed by reaching other trade agreements within an acceptable level at later stages. Secondly, China needs to plan the economic work for 2020 in the Central Economic Work Conference at the end of the year, before the overall economic growth for this year is determined. In addition, China should plan the economic and social development goals and strategies for its 14th Five-Year-Plan.
Judging from the development in October, the Chinese economy has not had a good beginning in the fourth quarter. Some research institutions have sorted out some of the high-frequency data in October, and found out that the economic operation is far less than expected. Not only that the pressure of weakening does not decrease, it rises instead.
Data of production shows that there is more decreases than increases, and the overall production situation is weak. Since October, the output of crude steel in key enterprises has remained stable, and the output of iron concentrate has decreased to 400,000 tons/day. The blast furnace operating rate fell back to 63.5%, compared with 66% last month. The Nanhua Commodity Index fell back to more than 2,200 points at the end of the month, being a decrease of nearly 60 points from the previous month. The national coal price index fell to 155 points as a whole. Among the sub-items, except for the lignite prices related to power generation, the price indices of thermal coal, clean coal, injection coal, and anthracite all have declined.
Manufacturing, non-manufacturing, and comprehensive PMI have all declined, and the demand was weaker than expected. In October 2019, the manufacturing PMI was 49.3%, down 0.5 percentage points from the previous month, and was below the line for six consecutive months. Four of the five sub-indices have also declined, indicating that the current economic downturn is greater. The non-manufacturing PMI was 52.8%, down 0.9 percentage points from the previous month. The PMI of the service industry has reached a low point in recent years, and the climate of the business, finance, real estate and other industries related to production has dropped significantly. The overall PMI was 52%, down 1.1 percentage points from the previous month. Production, orders, inventory, and price indices are all falling, reflecting the pressure of weakening demand and the difficulty to see an economic recovery this year.
On the other hand, the investment growth rate was stable at a low level, the manufacturing investment was low, while the real estate development investment dropped at a high level, and the infrastructure investment has now gradually picked up. The China Steel Price Index of the China Iron and Steel Association (CISA) fell significantly in October. The China Steel Production Cost Index (CSPI) for the third week was 105 points, down 1.1 points from the end of last month. Looking at the major steel prices, basically all categories of steel prices have declined, and the rebar prices closely related to investment have fallen to more than 3,800 yuan / ton.
The price factor drove the growth of nominal consumption to rise slightly, and automobile consumption remained sluggish. Since October, the growth rate of average daily sales area of commercial housing in 30 large and medium-sized cities has been slowed down to 0.2% year-on-year. The growth rate of commercial housing sales in first-tier cities turned from negative to positive, increasing by 1%, a relatively low growth rate. The growth rate of second-tier cities narrowed by 7.3%, and that of third-tier cities turned from positive to negative, decreasing by 10.1%. Since October, the land transaction area has decreased, and the land transaction area of 100 major cities has been -54.1% year-on-year. The decline in commercial housing land and industrial land transaction area has been expanding. The current consumption growth of building decoration, furniture and home appliances related to real estate is weak, and it is still a single-digit growth. Since October, auto retail sales have continued to grow negatively. In the first three weeks, auto retail sales were -13% year-on-year. The year-on-year decline was widening, and wholesale sales were -10% year-on-year. Automobile consumption will continue to grow negatively.
Pork prices are still rising, and the differentiation of CPI and PPI is still expanding. As of October 25, the national average pork wholesale price has reached 51.01 yuan/kg, a year-on-year increase of 164%. The increase in pork prices led to a slight increase in the price of beef and mutton, which was 69,68 yuan/kg in late October, up nearly 20% year-on-year. Affected by this, it is expected that the price of food in October will continue to rise. The PPI rose slightly, and the tail-raising factor or carryover effect dropped significantly. The year-on-year decline continued to expand. From the trend of the weekly commodity price index published in October, the overall price index rebounded from the previous month. The prices of rubber, livestock, and oils rose sharply, while the prices of energy, steel, and minerals declined.
Judging from the above data, the signs of the Chinese economy do not seem to be optimistic. As we have previously pointed out, the "new normal" of the Chinese economy has shown signs of derailment. From the perspective of economic phenomena, the Chinese economy can be said to be in a period of slowdown. Due to the economic structure of China and the loosening of the world's currency, one cannot rule out the possibility of this decline to be a long-term one. In the short term, China's economic growth in the fourth quarter of this year may fall below 6%, and this major slowdown may continue into 2020.
Final analysis conclusion:
The slowdown of China's economic growth is still continuing. Due to the existence of structural factors, it is not easy for China to overcome and solve internal problems in the short term, while the external economic environment is not controlled by China's policies. Overall, the market and investors need to be prepared for the continued slowdown in China's economic growth.
