China’s Industrial Output Grows At Weakest Pace In 17 Years

A sign that the trade war is taking a toll.

Industrial output growth in China has slowed to 5%, the lowest year-over-year pace since 2002.

Investment is also weakening, with fixed-asset investment growing 5.6%.

Notably, those are the figures being reported by China itself. Many analysts believe the Communist State regularly manipulates the numbers, meaning the actual stats could be far worse.

According to Bloomberg economists Chang Shu and Qian Wan, things could get worse for China due to the trade war:

“The most disconcerting aspect of China’s weak May activity data is the across-the-board deceleration in investment. The production side also notably undershot. Looking ahead, the impact of the negative trade shock is likely to intensify in the absence of a clear path to a resolution to the trade war with the U.S.”

Many stock markets were in the red following the weak economic data in China, though that was somewhat balanced by stronger than expected numbers in the United States.

Iris Pang, an economist based in Hong Kong, says “China needs more stimulus to keep GDP growing above six per cent.”

China’s vulnerability

The reality is that China is far more vulnerable than the United States when it comes to the trade war. While the US imports a lot from China, that actually gives the US more leverage, since China has more to lose.

Roughly 80% of US GDP is based on internal economic activity, and many of their imports can be replaced with domestic production.

Meanwhile, China is still in the midst of a long-term effort to reduce their dependence on exports and increase domestic production.

Additionally, while the US can channel discontent through the safety valve of elections, China has no such mechanism, and can only rely on increased propaganda and ever-escalating authoritarian crackdowns if discontent rises due to economic strife.

Spencer Fernando