New deregulation measures expected to boost cross-border trade and investment
The economy is showing various signs of weakening. In Q3, GDP grew at a rate of 6% y/y, down 0.2 pps from Q2, and down 0.5 pps from Q3 2018. Industrial output expanded 5% y/y, down 1 pp from Q3 2018. Investment grew 4.7% y/y, down 0.8 pps from Q2.
Retail sales of social consumption goods grew 7.6% y/y, down 1 pp from Q2, and down 1.4 pps from Q3 2018. Sales’ real growth rate was 5.7% y/y, down 0.8 pps from both Q2 and Q3 2018. Imports fell -2.9% y/y, down 5.2 pps from Q2, and down 21.9 pps from Q3 2018. Exports rose 3.9% y/y, down 1.8 pps and 6.4 pps from Q2 and Q3 2018, respectively. The trade declines were mainly caused by the weakening global economy and the trade war with the United States.
In Q3, CPI rose 2.9% y/y, up 1.1 pps from Q1, continuing its appreciation trend. However, producer prices turned to negative growth. The ex-factory price index of industrial goods fell -0.8% y/y, and PPI fell -1.2% y/y, both down 1.3 pps from Q2. Higher CPI raised policymakers’ concern, leading to tightening monetary policy. At the end of September, M2 was up 8.4% y/y, the same as in June. M1 expanded at a rate of 3.4% y/y, down 1 pps from the end of June.
The State Council on October 23rd announced 12 detailed measures to better facilitate cross-border trade and investment, including by improving foreign exchange management and by further streamlining regulatory requirements, with a view to using a better business environment to attract foreign investors. We believe these detailed plans complement the central leadership’s promise early this year to keep China more open, in contrast to the rise of protectionism in some other countries. The plans are very detailed and are expected to have an immediate positive impact on trade and foreign investment, and therefore on aggregate economic growth.
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