We will need to wait awhile for provincial data to follow, but it would not be surprising if Guangdong takes the national lead in showing weakness during August. Data for China’s trade released over the weekend showed an unexpected drop in exports and imports, as the trade war continues to bite.
Analysts quoted by Reuters said it was clearly the result of a weaker than expected external environment, and came despite the devaluation of the Renminbi.
As was pointed out in one of our features published last week, Guangdong has been hit harder than the rest of the country by the trade war, as its traditionally export-oriented manufacturing industry had been heavily reliant on the US. However, the province has also been responding more quickly with aggressive investment plans, and it will be interesting to see if this continues to show up in data for fixed-asset investment when it is released.
Guangdong has been accelerating investment into industrial upgrading and infrastructure construction to offset the trade slowdown and build for the future under the Greater Bay Area plan. Even though traditional manufacturing bases for lower-end goods, such as Jiangmen and Zhongshan, have been slowing sharply, the province’s high-tech and finance districts have seen a surge of investment and output has been relatively stable.
Moreover, hopes are rising again for stimulus-oriented policies from the central government, after the PBOC cut the reserve requirement ratio on Friday, giving stocks a lift.
Overall, we are positive on the longer-term outlook for the GBA. But we do not anticipate the economy getting better until it has gone further into the valley, so to speak. Readers seeking a more detailed briefing are welcome to get in touch.