Chinese exporters see endless trade war as orders drop
Chinese exporters reported the weakest operating conditions in three years in July, as hopes for a near-term settlement of the US-China trade war continued to ebb.
Our latest survey of 200 Chinese exporting companies found nearly 40 per cent saying the trade war was marks the permanent state of the Sino-US relationship, up from just 7 per cent in March.
This sharp rise reflects the collapse of talks in May, and a subsequent hardening of positions since then. In March, more than three-quarters of respondents were expecting a resolution within six or 12 months.
Although presidents Donald Trump and Xi Jinping agreed in June to resume talks — an agreement that forestalled the US imposition of tariffs on another $300bn in Chinese goods imports — expectations that the two sides can do a deal have been significantly downgraded as the weeks have worn on and as the points of tension in the bilateral relationship have increased.
They may fall further as the US election cycle heats up, though Mr Trump may also be tempted to try to bypass Washington hardliners and cut a quick deal if US economic growth weakens in the run-up to the vote.
Talks are resuming in Shanghai this week, though with far less fanfare than surrounded previous meetings, reflecting the lowered expectations.
Despite ongoing tensions, most respondents to our export survey said the trade war was not having an impact on their business, while two-thirds said they were taking measures to counter its impact, with expansion into the new markets the most popular of these.
Exporters are operating in an increasingly challenging environment as the global economy slows. Our FTCR China Export Index fell 0.2 points in July to 50.7, which was the weakest reading since summer 2016. The headline index was dragged lower by our measure of new orders, which fell for a third straight month, while companies also reported that profits continued to drop in July.
Domestic demand was even slower in July, according to our survey of 200 logistics companies. The FTCR China Freight Index rose 0.5 points from June to 48, marking the fourth straight month below the 50 mark separating improving from deteriorating operating conditions. Freight companies reported further weakness in rates charged and profitability, while the difference in the number of groups reporting slower business versus those reporting an increase narrowed only slightly from June.
Neither survey suggests that the Chinese economy is experiencing the kind of shock seen in 2015 and 2016, when the government aggressively loosened policy to contain the impact of a stock market collapse and botched currency devaluation.
Instead, they point to an ongoing, gradual slowdown that has proven impervious to the modest steps taken by the authorities so far to stimulate demand. An anticipated meeting of the Communist party politburo to assess the state of the economy is fuelling hopes for more aggressive stimulus in the second half of the year.
As economic and financial risks increase, the government is facing more pressure to support growth, in the process moving further from its previous commitments to clean up debt. Although officials have consistently ruled out large-scale stimulus, the chances of more aggressive action are rising as the government’s growth targets come under pressure.
FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and south-east Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.