Trade War Hits China’s Industrial Production

The latest economic data this week has once again illuminated the extent of the damage caused by the ongoing trade war between the US and China. Industrial production in China hit a fresh 17 year low over August growing at just 4.4%, down from the prior month’s 4.8% reading. Industrial production is now at its lowest level since February 2002.

The data is particularly worrying given its timing. The reading reflected a move lower in industrial production ahead of the implementation of fresh US trade tariffs which took effect (partially) from September 1st.

Fixed Asset Investment Weakness

The break-down of the data highlights the severity of the downturn in China. Fixed asset investment which includes physical assets such as real estate and infrastructure, grew at just 5.5% in August. This was down from the prior month’s 5.7% reading and was also below analyst expectations.

The slowdown in industrial production was evident across both manufacturing and mining. Manufacturing rose by just 4.3% last month. This was down from 4.4% in July and further still from the 5.2% reading in June. Meanwhile, mining output rose at just 3.7%, down starkly from the prior month’s 6.6% reading.

Exports Down

Furthermore, exports were down over the month, falling 1% in August, while imports declined also by 5.6%. Imports have now fallen in each month of the year besides April, providing a clear commentary on the impact of the trade war. The data also showed that the manufacturing purchasing manager’s index remained in negative territory over the month as expectations of new export orders moved lower yet again.

Retail Sales Fall

Alongside the weakness in industrial production, China’s National Bureau of Statistics also released Retail Sales data. This grew at just 7.5% over the month. This reading marks a decline from the prior month’s 7.6% reading. It further came in below analysts forecasts of a 7.9% print.

Both Sides Making Concessions

The data makes for bleak reading on the Chinese economy which has been rocked by the nearly two-year-long trade war. There is some light at the end of the tunnel, however. Trump recently announced that the planned 5% increase in tariffs on $250bilion of Chinese goods will be postponed from October 1st to October 15thThis comes amidst growing speculation that the two nations might strike a partial deal at the upcoming trade talks this month.  Indeed, China itself has also made some concessions, announcing last week that it will exempt some US products (including some agricultural products) from tariffs.

Cautious Optimism

These positive signs have been met with cautious optimism by traders. The relationship between the two nations has been notoriously volatile and similar periods of progress have resulted in collapse. Until such an interim deal is made, we are unlikely to see much of a price action driver. This is especially true given the backdrop of heightened concerns around tensions in the Middle East.

Technical Perspective


A retest of the broken trend-line from 2018 lows has once again capped the rally in the SPX500. However, while we remain above the broken base at 2941.92, focus is on a further grind to the upside with bulls looking to penetrate above all-time highs at 3028.27 next. The near term bullish bias will only if price slips back below the 2941.92 level.

About the Author
“John Benjamin Resident Analyst at Orbex. John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.” [space height="10"] At Orbex, we are dedicated to serving our clients responsibly with the latest innovations in forex tools and resources to assist you in trading. Please Director at Visit our site for more details.

Leave a Reply