• While markets have decided the crisis is over we think we’re not returning to the levels of incomes that we enjoyed before the pandemic hit. Here's why

Taking stock of China’s slowing economy

25012019_Chinese economy

Taking stock of China’s slowing economy

The Chinese economy, long the growth engine of the world, is showing increasing signs of fatigue. China reported 6.6 per cent GDP growth for 2018, the slowest pace of annual growth in nearly three decades, and even slower growth of 6.4 per cent in the fourth quarter.

The economy is facing downward pressure from a confluence of headwinds – from the structural hangover after decades of debt-fuelled growth, to a reversal of the global synchronised growth witnessed in early 2018, to the dampening effects of a bruising trade war with the US.

Screen Shot 2019-01-24 at 2.42.59 pm

Source: Bloomberg

An unprecedented RMB 4 trillion stimulus program in the wake of the 2008 global financial crisis helped pull the global economy out of a prolonged slump and staved off recession altogether in economies such as Australia.

Following the last bout of property and infrastructure-driven stimulus in early 2016, the Communist Party resumed its policy of tightening and austerity to address structural imbalances in the economy. Fortunately for the rest of the world, the conservatively-leveraged Chinese consumer helped fill the demand gap left by restrained corporate and government expenditure. But today, household debt to GDP exceeds 50 per cent and Chinese consumers are tightening their purse strings at the same time as industrial production is weakening due to the US tariffs and further debt-driven stimulus is losing its effect.

Screen Shot 2019-01-24 at 2.43.39 pm

Source: Bank of International Settlements

Retail sales growth, one of the best indicators of consumer health and optimism, has fallen to the lowest level since 1999:

Screen Shot 2019-01-24 at 2.44.13 pm

Source: Bloomberg

Auto sales have also slumped over the last six months, leading to the first annual decline in vehicle sales since 1990:

Screen Shot 2019-01-24 at 2.44.40 pm

Source: Bloomberg

And finally consumption tax, which is charged on sales of luxury items such as automobiles, designer handbags and iPhones, also collapsed in the final quarter of 2018 as the impact of the trade war began on bite:

Screen Shot 2019-01-24 at 2.45.05 pm

Source: Bloomberg


Daniel Wu is a Research Analyst at MGIM. Prior to joining MGIM in June 2016, Daniel was an analyst in the investment banking divisions of UBS and Goldman Sachs, where he covered the Infrastructure, Utilities, Technology and Media sectors.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

Why every investor should read Roger’s book VALUE.ABLE


find out more



  1. If you check chart for annual GDP growth, it doesn’t suggest lower growth is now the norm. And when it’s seemingly all bad news, maybe good times are just around the corner. That’s what common wisdom always tells us. We need to be strong at these times. No good getting carried away when it’s all good news and speculation is rife.

    Just throwing this out there for comment by you guys who probably know more than me…

  2. Do people still believe China’s official gdp growth numbers ?
    How is it possible to have over %6 growth when you have -%20 yoy auto sales
    -%4.5 reduction in net exports yoy since dec18
    And massive decline in chinese stock markets
    Declines in housing markets
    And to be sure, we have high profile chinese professor of economics saying the 6.5% number is BS and then giving his estimate of 1.6% and saying it could even be lower than GFC levels.
    Yet people dont question the official numbers
    Maybe their portfolios will eventually reflect their faith in fantasy.

Post your comments