#USChinaTensions #ChainaPMI #ChainaEconomy #ChainaStocks

April economic data from China turned out to be... well, to put it bluntly, disappointing. And these are not just numbers – they are a wake-up call that once again raises concerns about the health of the world's second-largest economy and its impact on global markets. Especially against the backdrop of ongoing trade tensions with the United States.

What did the numbers show?

The main indicator – the Purchasing Managers' Index (PMI) in manufacturing – fell more than experts expected. It dropped from the March peak (the highest in a year). The services sector also slowed, dropping from a three-month high and falling short of forecasts.

Private surveys confirm the picture: the manufacturing PMI also declined. Essentially, these indicators have become the lowest since January (for the composite index) and since December 2023 (for manufacturing according to official data).

What exactly is wrong? Deterioration almost everywhere:

  • Production volume: Companies have started producing less.

  • New orders: Coming in slower, especially export orders.

  • Employment: Companies are hiring less or even laying off staff.

  • Business confidence: Has fallen to lows not seen for many months – businessmen are looking to the future with caution.

The main culprit? The trade war with the United States is hitting harder

Weak data have again raised questions about the vulnerability of the Chinese economy, especially in the face of trade barriers. The growth of new orders has slowed, and overseas sales have actually gone down again. Why? The same high American tariffs. This led to the most substantial reduction in foreign orders in the last 11 months.

Analysts are increasingly saying: the trade dispute between China and the United States will continue to stoke the fire, worsening external demand for China in the coming quarters.

Despite all of Beijing's attempts to stimulate the economy, their effect so far seems limited. The retaliatory Chinese tariffs only exacerbate the situation for both sides. Progress in trade negotiations is not yet visible.

How did the markets react?

Bad news have not gone unnoticed for the financial markets:

  • The yuan under pressure: The offshore yuan weakened, trading around 7.27 against the US dollar. This indicates investor nervousness and expectations of further weakening of the Chinese currency.

  • Bonds: The yield on 10-year Chinese government bonds remained around 1.63% – a minimum in more than two months. Low yields often indicate an economic slowdown and expectations that the central bank may have to ease its policy.

  • Stock market:The picture is mixed, but under overall pressure. The Shanghai Composite Index slightly declined. The Shenzhen Component rose, but the overall mood was clouded by weak PMI data and the clouds of the trade conflict. Financial company stocks were particularly hard hit. However, the technology and consumer goods sectors slightly supported the market, softening the decline.

Is Beijing looking for a way out? The new law and 'economic aggression'

In response to economic difficulties and risks from trade wars, China is trying to systematically stimulate the economy. One of the most notable steps is the adoption of the Law on Promoting the Development of the Private Economy. This is the first law of its kind, and it will come into effect on May 20. Its goal is to improve conditions for private businesses, ensure fair competition, and support private companies and their employees.

And this is not just a formality. The private sector is the backbone of the Chinese economy: it accounts for over 60% of GDP, provides 80% of urban jobs, and makes up over 92% of all enterprises in the country! Supporting private businesses may be key to domestic growth.

In addition, China's Ministry of Foreign Affairs released a video on social media calling for peace to counter what they called 'economic aggression from the United States'. Tariffs are not directly mentioned there, but it is a clear signal to Washington and an attempt to gather supporters around them.

Interestingly, while Chinese authorities are behaving quite cautiously and are not rushing into aggressive stimulus measures, preferring a more measured approach in response to the impact of tariffs.

What's next?

April data clearly showed: the wind for the Chinese economy is getting colder, and the trade war with the United States plays a significant role in this. Markets are reacting nervously. Will the new law for the private sector breathe life into the economy? Will Beijing resort to more powerful stimuli if the situation does not improve? One thing is clear: the coming months will be challenging, and closely monitoring signals from China is crucial for understanding global market trends.