Summer vacations provide a time for rest and reflection. While relaxing in the sun in August, we could not help but reflect on a critically important piece of business, economic and policy news you won’t often see reported in the mainstream press.
What is this headline? China is losing the first salvo of the trade war with the US. While no one – except perhaps President Trump himself – believes that trade wars are “easy” to win, the victor of round 1 appears hard to dispute.
Regardless of where you sit – either by industry or manufacturing supply chain tier – it’s clear that on an overall economic basis, China is taking a greater beating than the US. According to Trading Economics, the Caixin China’s Manufacturing PMI (formerly the HSBC PMI), “fell to an eight-month low of 50.8 in July of 2018 from 51.0” and both output and new business “grew at softer rates while new export orders fell at the steepest pace for 25 months.”
The economics website also reports that “Meanwhile, a further reduction in staffing levels contributed to a sustained increase in backlogs of work …[and] optimism towards the year ahead remained relatively subdued amid concerns surrounding tough market conditions, strict environmental policies and the potential impact of the US-China trade war.”
In an article titled, Trade War Hurts China While U.S. Economy Booms, Forbes provides further insight on the Chinese decline, suggesting that the PMI data is in fact “only [emphasis added] the latest indication the Chinese economy is slowing.” Specifically, Forbes reports that Chinese GDP also slowed in Q2 2018 and that as of July 2018, the most important Chinese public equity indicator (like the NYSE), the Shanghai Composite stock index, has declined 12.6 percent throughout 2018.
Now contrast this with the architect of the trade war: The United States (which many would argue was finally just responding to decades of provocation in the form of Chinese mercantilist and protectionist policy rather than acting as a trade bully pulling the first punch). But either side of that point is open to debate. What is more cut-and-dry are the facts suggesting what U.S. policies are doing for economic growth at home.
In the same article referenced above, Forbes also reports that domestic GDP growth “hit an annual 4.1 percent in the second quarter, the fastest growth in four years” and that “the S&P 500 stock index is up almost 14 percent in the last year, while the U.S. Dollar is booming against other major currencies.” And comparing the tale of the two economies, the business magazine suggests that “one indication that China is feeling the pain more than the U.S. is that the Chinese government called for new talks with Washington to settle their trade differences.”
In various news stories and live coverage throughout late July and early August, CNBC has reported another side of the Chinese economic decline: declining values of the RMB, China’s currency. While many believe China has manipulated the RMB aggressively over the years, the RMB’s latest decline is one that many believe the Chinese government does not want (unlike in the past).
Quoting Trump Economic Advisor Lawrence Kudlow – who also served as an advisor to President Reagan and as Bear Stearns Chief Economist – CNBC notes that “some of the currency fall is money leaving China … if money leaves China, and the currency could be a leading indicator, they’re going to be in a heap of trouble.”
All of this raises the question: is there good economic news coming out of the middle kingdom? Well, yes. China continues to improve its ranking in Transparency International’s Corruption Index year-over-year, now coming in at 77. This ranking ties it with Serbia, Suriname and Trinidad and Tobago – better company than it was able to keep only a few years ago.