ADVERTISEMENT

China’s Economy Slows Further as Trump, Xi Set to Meet in Japan

China’s economy continued to weaken in June, highlighting how important it’ll be for Xi Jinping to push forward talks with Trump.

China’s Economy Slows Further as Trump, Xi Set to Meet in Japan
Arial image of an ore depot as China’s decline in exports adds pressure for settlement With Trump. (Photographer: Qilai Shen/Bloomberg)  

(Bloomberg) --

China’s economy continued to weaken in June, with the slowdown underscoring how important it will be for President Xi Jinping to push forward talks with President Donald Trump this week and avoid tariffs on the rest of the nation’s exports to the U.S.

The deterioration is reflected in a Bloomberg Economics gauge aggregating the earliest available indicators of business conditions and market sentiment. The small businesses outlook worsened from May, with trade tensions weighing on future sales. Property stocks, South Korean exports and factory inflation all pointed to the downside, while major Chinese stocks, iron ore and copper prices improved.

China’s Economy Slows Further as Trump, Xi Set to Meet in Japan

The fragile economy gives Xi a less upbeat backdrop for the negotiations than his counterpart. The government and central bank have tried to funnel stimulus to smaller companies and the private sector, but they will face much more immediate pain than the large and state-owned firms if the meeting goes sour and the nation’s exporters face a 25% tariffs on everything headed for the U.S.

“Even if the trade war stops escalating as a result of the Trump-Xi meeting, pressures are still mounting on smaller companies,” according to Bloomberg economist Qian Wan in Hong Kong. “The targeted stimulus policies have been less effective in filtering through to them.”

China’s Economy Slows Further as Trump, Xi Set to Meet in Japan

Small businesses form the backbone of the Chinese economy and the majority of employment. Weakening domestic demand is taking a toll on their production and sales, and investment appetite remains sluggish, Beijing-based Standard Chartered economist Shen Lan wrote in a note.

While some exporters have been boosted by the front-loading of production and shipments to the U.S. in the expectation of more tariffs, the outlook for sales and profitability are dampened by the unresolved conflict

The onset of higher duties on an additional $300 billion of Chinese exports to the U.S. has been suspended pending the resumption of talks, according to people familiar with the plans.
At the same time, Trump said Wednesday that substantial additional U.S. tariffs would be placed on goods from China if there’s no progress on a trade deal after his planned meeting with Chinese counterpart Xi Jinping at the G-20 Summit in Japan.

Commodity prices have been volatile this month, with a key mine shutdown in Brazil pushing global iron ore prices higher and a strike in Chile squeezing copper supply. They don’t mean a strong economy - iron ore futures dropped for a fourth day on Wednesday on concerns about demand.

Property stocks are down from a peak in April, although they’re higher than at the end of May. South Korean exports, a early indicator of the health of trade, especially for electronic goods, declined by 10% in the first 20 days, painting a bleak picture of weakening demand and supply chain disruptions. Factory inflation remained subdued, according to a Bloomberg tracker.

To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net;Adrian Leung in Hong Kong at aleung206@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger

©2019 Bloomberg L.P.

With assistance from Bloomberg