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Home / Business / China's economy is deteriorating. It makes a trade more likely

China's economy is deteriorating. It makes a trade more likely



The country released data on Monday that showed industrial output – a key indicator of China's economy – increased by only 4.4% in August compared to the previous year. This is worse than the sector's result in July, when it grew by 4.8%, the weakest growth of 17 years.

Industrial production is important because it measures the production of important enterprises in China's industry, mining and supply sectors. The latest figure was also worse than the 5.2% growth that analysts polled by Reuters.

Other data released on Monday by China's National Bureau of Statistics was also poor. Retail sales growth slowed to 7.5% in August, down from 7.6% in July from the previous year.

The world's second largest economy has suffered because of its trade war with the United States. It also faces domestic challenges as it tries to rely less on debt to fuel growth.

  China exempts US soybeans and pork from customs duties
The new data comes as China's tense trade relationship with the US appears to be improving, at least a little. China announced last week that it would exempt US soybean and pork from the tariffs. This was the latest in a series of steps both countries have taken to cool off ahead of a new round of trade talks.

The soft August numbers reflect a "growing downside risk to the economy" as the trade war rages, said Ken Cheung Kin Tai, chief currency strategist for Asia at Mizuho Bank in Hong Kong. "Given this, it makes sense that China has softened its stance on trade talks" and introduced stimulus plans in recent weeks.

The weak data also speculate on how China's central bank will continue to respond to the decline, Cheung added. [19659002] People's Bank of China has taken several steps in recent weeks to boost the country's economy. Earlier this month, it reduced the amount of cash that banks must keep in reserve by reducing the reserve requirement for the first time in eight months.

  China takes more steps to boost its slowing economy
And in August, the central bank launched a new Loan Prime Rate which will be the benchmark for banks to price loans, a reform intended to support growth and employment. It is resolved monthly. Cheung said Chinese makers can fix this rate lower when set later this week.
China has also allowed the yuan to weaken to its lowest level in more than a decade in recent weeks. But a weaker currency is unlikely to offset tariff problems and slow global demand, said Martin Lynge Rasmussen, a China economist for Capital Economics. He said in a research note on Monday that China is likely to continue to ease monetary policy in the coming months.

Tommy Wu, senior economist at Oxford Economics, also said that the country must take significant steps to stabilize growth. His company predicts that the economy will grow 6.1% this year and 5.7% in 2020.

The People's Bank of China may consider a cut in interest rates on medium-term lending, which is a key interest rate, says Ting Lu, chief China economist for Japanese investment company Nomura. He also expects the government to loosen restrictions on the property sector later this year to help stimulate purchases.

Chinese officials have said they have enough tools available to boost the economy.

"The Chinese economy is facing some downward pressure from curbing global growth, protectionism and rising unilateralism," Chinese Prime Minister Li Keqiang said in an interview with Russian media, according to a statement published Monday by the Chinese government. "But the economy also has great resilience, potential and enough room to maneuver."

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