It Looks Like China’s Slump Is Sticking Around

It Looks Like China’s Slump Is Sticking Around
Daniel Johnston

6 months ago2 mins

Data out on Wednesday suggested that China’s slump has settled in for an extended stay.

What does this mean?

Rewind to the beginning of this year, and China’s economy was seriously flexing its muscles. But the country's fallen pretty far since then: investment and industrial profit were both on the decline in April, and retail sales didn’t exactly blow the roof off either. And May has continued that dreary trend: one measure of manufacturing activity sank to the lowest figure recorded this year – a reflection, in part, of a global dip in demand for goods. And the service sector, the linchpin of China’s recovery, is seeing its growth falter too, which could spell serious trouble.

China PMI

Why should I care?

The bigger picture: Great stall of China.

This change in China’s economic stride is increasing the risk of a downward spiral, triggered by businesses and consumers alike. After all, purse strings could tighten now there's less money coming in, leading folk to spend and invest more grudgingly. Economists, at any rate, are already nudging their growth forecasts down to 5.5%. And while that’s still higher than the government’s 5% goal, it’s a chunky downgrade from the 6%-and-up target they were cheerleading for a few months back. Mind you, though, if the government wants to zhuzh up the economy, it may have to make good on some of its much-rumored but little-seen economic support programs.

For markets: Injured index.

If the government does step up and act decisively, it could rekindle Chinese markets and present an attractive buying opportunity for investors. But after this prolonged period of uncertainty, a lot of folks’ patience seems to be wearing thin. Just take a look at Hong Kong’s Hang Seng Index, which tracks a bunch of big mainland companies: it’s already dropped well into “bear market” territory, down 20% from its peak back in January.

Hang Seng Index
Source: Google Finance


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