China’s Economy Shows Modest Improvement in 2Q, Beige Book Says
China’s economy hit a bump in May, with the U.S. adding new tariffs to Chinese goods.
(Bloomberg) -- China’s economy saw a modest improvement in the second quarter but the risks ahead look more serious, according to the quarterly Beige Book report.
The manufacturing and retail sectors outperformed, with policy support allowing manufacturers to borrow cheaply and the retail sector seeing strong profits and sales volumes. However, the downside risks to the economy look more serious, the research firm wrote, referring to flat capital expenditure, record inventories, more shadow finance and surprise inflation pressures.
“Shadow finance returned with a vengeance, rocketing to the highest proportion of overall lending in CBB history,” according to the report. That signals the borrowing cost is rising, as those lending channels always offer more expensive money than bank loans.
China’s economy hit a bump in May, with the U.S. adding new tariffs to Chinese goods, industrial output growth slowing to the weakest pace since 2002 and investment decelerating. That weakness adds to the importance of the meeting between President Donald Trump and his counterpart Xi Jinping later this week.
Those shocks haven’t hurt the performance of manufacturers and retailers so far -- they actually outperformed this quarter -- yet they are reluctant to invest, possibly due to fear of what lies ahead. “The new problem is disinterest in investment,” CBB International wrote. “Manufacturers may be anticipating a trade blow.”
The report is based on 3,771 interviews conducted in China mid-May to mid-June.
To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net
To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Karthikeyan Sundaram, James Mayger
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With assistance from Bloomberg