China: Data points to a continued slowing of the economy - BBH

Research Team at BBH, suggests that the news stream today included a rash of Chinese data that points to a continued slowing of the world's second largest economy.   

Key Quotes

“China's data was for last month.  Industrial output growth slowed to 6.0% from 6.2%, and retail sales eased to 10.2% from 10.6%. Fixed asset investment was particularly soft, falling to 8.1% from 9.0, the slowest pace since 2000. The other important report revealed that lending slowed dramatically in July. Aggregate financing fell to CNY488 bln, less than half of what was expected and 2/3 less than the CNY1.63 trillion in June.   

We have been skeptical of the extent that the Chinese economy is truly transitioning from its export-led, investment fueled, debt financed strategy.  However, today's data, especially the investment and lending figures are suggestive. Much has been made this week of the new PBOC statement about its intentions to further the internationalization the yuan and yield more to market forces. 

We note that the main challenge for some time now has not been the PBOC's declaratory policy or China's for that matter.  Rather the issue is the gap between the declaratory policy and the operational policy. The ambivalence is evident: Embrace market forces and ensures that the yuan is broadly stable. One of the functions of floating, which means variable, exchange rates is that they can help absorb shocks. China wants its cake and eat it too, and who wouldn't?”