Chinese economy remains challenged


    In 2019, the economic development in China was particularly affected by the trade war, whereas growth in 2018 wasn’t affected in the same way. The sales of cars reflect a part of this pattern, although last year luckily finished with some optimism.

    Back in 2018, car sales began a decreasing trend in China, but I do not believe that this was a close connection to the trade war with US. The decline was more closely related to a general slowdown in consumption, but the growing storm from the US trade war obviously reinforced all negative developments in the economy.

    The decline in car sales continued into 2019, with the annual decline reaching 17.5 percent at the beginning of last year. It should be mentioned that many statistics include smaller vehicles for commercial use, but the statistics to which I refer to exclusively include passenger cars.

    The sharp downturn a year ago clearly had a connection with the trade war, as consumers simply feared for their job security. Amplifying the decline in sales of new cars is the increasing tendency to buy a used car in China.

    In addition, a subsidy for electric cars in China has been removed, so electric-driven cars become less attractive to acquire.

    Thus, it is not only the trade war with the United States that pressured car sales down, and it is even more interesting that car sales gained so much momentum in late 2019, that the annual change ended at just minus 0.9 percent.

    That is not even status quo, which in absolute terms is less impressive, but it is a significantly improved momentum that is brought into this new year, compared to 12 months ago.

    The latest numbers for China’s exports also confirm improved developments in November and December.

    In December, the export increased with 9.1 percent compared to 2018, but a part of the increase can be explained, as so-called statistical base effects, which do not represent a real increase in the export of goods or services. However, there is also a real progress hidden in the data, just more modest than the headline numbers.

    Just as with the trade war, the situation for China’s economy has improved compared to the start of 2019, but conversely, nothing really bubbly.

    However, one should not neglect that in 12 months, China’s economy is about 6 percent larger than today. It emphasizes that China is always offering a wealth of opportunities for investors and companies, but more humble work is needed to find the successes.

    The past week, however, represented at least a partial solution in the US-China trade war, as Chinese chief negotiator Liu He visited Washington DC to sign the so-called “phase one” agreement.

    In the agreement, the US will stop further raising of its tariffs towards China, but in return, China must buy additional $200 billion worth of goods in the United States over the next two years.

    To take further air out of the controversies, the United States at the same time announced that it no longer considers China to be a “currency manipulator”.

    This predicate was awarded to China as late as last August, which was at the same time when the trade war between the two economic superpowers flared up again.

    I value the current development as positive, as there is no doubt that the new Chinese year starts with a more conciliatory situation between the US and China, and where the two parties have found a platform to find solutions on outstanding disagreements.

    The most important development by signing the “phase one” deal is that China and US are now on a patch to find solutions that are supportive towards global growth this year.