Trump Introduces Uncertainties
Economic growth was relatively stable in October. Fixed asset investment was up 9% y/y, a 2 pp rise from Q3. Industrial output was up 6.1% y/y, and its growth rates have been very stable, with volatility of only around 0.3 pps. But electricity production rose 8% y/y, a record high for many years, and up 7.8 pps from Q2. The faster electricity production runs contrary to the very flat economic growth, which might be seen as a potential general economic pickup.
Retail sales of consumer goods were up 10% y/y in nominal terms in October, down 0.5 pps from Q3. CPI was up 2.1% y/, up 0.2 pps from September. The ex-factory price index of industrial products rose 1.2% y/y, and grew 0.7% m/m, a fast expansion based on the already positive number in September. PPI rose 0.9% y/y, turning positive for the first time.
Exports fell -7.3% y/y in dollar terms, another 1 pp fall from the already low level of Q3. Export volumes have fallen to 2012 levels, and the decreasing trend is unchanged. Imports fell -1.4% y/y, a reverse of their rising trend, and up 3.3 pps from Q3. This may be caused by, among other factors, the over-valued RMB against the recently devalued GBP, euro and some emerging markets currencies.
By the end of October, M1 was up 23.9% y/y, slowly falling from August, down 1.6 pps from July. M2 rose 11.6% y/y, a stabilized growth rate for the past several months.
The Trump presidency will add more uncertainty to U.S.-China relations. First, what he will really do is highly uncertain, given his many campaign statements. Nobody, though, really knows his plans. We think it’s highly unlikely that he’ll name China a currency “manipulator,” as the RMB’s real effective exchange rate had been appreciating for years, until recently. It is not certain how much he may change regional geopolitics.
Protectionist trade or investment barriers are more likely. But how severe might these be? As a lifelong businessman, Trump should understand well the meaning of trade and investment for American “interests” and, in particular, for domestic job creation. The China-U.S. relationship is one of the most important in the world today. Many more fundamental factors will play roles in the days ahead.
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