China Economy: Soft Data Renews Expectations for Quantitative Easing

Chinese Economy Slowing According to Soft DataThe month of July does not look good for China’s economy. Trade balance continued to deteriorate, while producer prices just hit the lowest level since late 2009. All this came in just after the 30% crash in China’s stock market.

Trade Balance: Both Exports and Imports Plunged

In the month of July, China exported 1.19 trillion yuan ($190 billion) worth of goods and services—a massive 8.9% decline year-over-year. Imports fell an equally large 8.6%, to a total of 930 billion yuan ($150 billion). (Source: General Administration of Customs, August 8, 2015.)

Trade surplus for July was 263 billion yuan ($42.3 billion)—eight percent lower compared to June’s number, and also below analysts’ expectations.

Europe’s uncertainty and economic slowdown continued to drag down China’s export numbers. In July, China’s exports to the European Union fell 12.3%.

In the first seven months of 2015, China’s exports totaled 7.75 trillion yuan ($1.25 trillion), a modest decline of 0.9% year-over-year. What’s more worrying is total imports for the period, valued at 5.88 trillion yuan ($950 billion), suffered a staggering 14.6% drop year-over-year. The plunging imports suggest that demand has been declining in the country.

China used to be the manufacturer of the world. Exports accounted for a substantial part of the country’s economic growth during the past several decades. Right now, the country is in the transition phase of shifting its growth strategy from exports to domestic demand. However, as the disappointing import numbers suggest, demand was not very strong.

Producer Price Index (PPI) Down 5.4%

According to the National Bureau of Statistics, China’s producers continued to face deflationary pressures in the month of July. (Source: National Bureau of Statistics of China, August 9, 2015.)

In July, China’s producer price index (PPI) declined 5.4% year-over-year, larger than the forecasted five percent drop. In the first seven months, PPI averaged a monthly year-over-year decline of 4.7%.

Yu Qiumei, senior statistician at the National Bureau of Statistics, attributed much of the decline in PPI to the falling prices of industrial products, as well as the lowering of oil and natural gas prices. (Source: National Bureau of Statistics of China, August 9, 2015.)

Analysts are saying that under these weak economic data, China’s central bank is likely to lower interest rates again in the near future. Since last November, the People’s Bank of China has already lowered its benchmark interest rates four times.