Macro Forum: The Street View


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GDP grew by 6.4% in Q4 in a continuation of the slowdown seen through 2018. Fiscal and monetary stimulus measures introduced in July to boost spending have so far failed to reverse the slow down. The continuing dispute with the USA on trade tariffs continues to dampen sentiment and is having a negative effect on consumer spending and capital investment. Government efforts to tackle runaway credit expansion are also curbing fixed asset investment growth which increased by 5.9% in 2018 down from 7.2% in 2017

Beijing continues its efforts to support the economy, most recently the Central Bank has announced it will inject $117bn into the banking system through cutting the share of deposits that commercial banks must hold in reserve in an attempt to boost lending and by giving tax cuts to both businesses and individuals, particularly those involved in the technology sector.

The Caixin/Markit Manufacturing Purchasing Managers index fell to 49.7 in December from 50.2 in November. Any reading below 50 indicates contraction. The fall in new orders is indicative on how weakening domestic demand and the US tariff dispute is pressuring the economy. Industrial company profits fell in November for the first time in three years.

Inflation rose 1.9% year-on-year in December lower than analyst expectations of 2.1% and 2.2% growth in November. Slowing inflation gives the central bank further opportunity to loosen monetary policy by cutting benchmark lending rates, currently at 1.5%.

Retail sales exceeded $5.6trn in 2018, $100bn more than in the USA. Growing wealth in the population and the rapid development of e-commerce has driven this retail boom. Over 35%, or $2trn of retail spend is expected to take place online in 2019, compared with 11% in USA.

The Shanghai Composite Index ended 2018 24.6% lower than the start of the year as negative sentiment took hold of the market. In recent weeks the Yuan has begun to strengthen thanks to a weakening dollar and more hopeful signs coming from the ongoing trade talks with USA, appreciating by 1.07% against the dollar at the start of the new year. By the close of 2018, the Yuan had depreciated 5.9% against the dollar over the 12 month period

In December, a 90-day ceasefire was called in the trade talks between China and USA and plans by the USA to increase tariffs on $200bn have been put on hold in the hope that a trade deal can be negotiated.










Real GDP Growth

Source: International Monetary Fund

China FX vs FV

Source: Bloomberg Spot Price and Actis methodology for Fundamental Value


Source: International Monetary Fund