China's economic slowdown is getting worse. This could give the country an incentive to re-establish its trade relations with the United States and take further steps to boost the economy.
The country released data on Monday showing that industrial production, a key indicator of China's economy, rose only 4.4% in August over the previous year. This is worse than the sector's performance in July, when it grew 4.8%, the weakest growth in 17 years.
Industrial production is important as it measures the production of key enterprises in China's industrial, mining and utility sectors. The latest number was also worse than Reuters' expected growth of 5.2%.
Other data published by the Chinese Bureau of Statistics on Monday were also bad. Retail sales growth fell to 7.5% in August from 7.6% year-on-year.
The second largest economy in the world fought because of its trade war with the United States. It also faces domestic challenges as it seeks to rely less on debt to drive growth.
The new data appear, as China's tense trade relations with the United States to improve at least a little. China announced last week that it would exempt American soybeans and pork from duty. This was the latest in a series of steps that both countries have taken to cool off before a new round of trade talks.
The weak August numbers reflect an "increasing downside risk to the economy" as the trade war progresses Ken Cheung Kin Tai, chief foreign exchange strategist for Asia at Mizuho Bank in Hong Kong. "Against this background, it makes sense that China has weakened its stance on trade talks" and introduced economic stimulus packages in recent weeks. 19659008] Related Video: The market can not absorb the escalation of the trade war, says the strategist.
The Chinese People's Bank has taken several steps in recent weeks to boost the country's economy. Earlier this month, it reduced the number of ATMs that needed to be kept in reserve by lowering the reserve ratio for the first time in eight months.
And in August, the central bank introduced a new interest rate on loans, which became the benchmark for banks to set prices for loans. This reform is intended to promote growth and employment. It is set monthly. Cheung said Chinese makers could lower that rate if it is scheduled later this week.
China has also allowed the yuan to decline to its lowest level in more than a decade in recent weeks. However, a weaker currency is unlikely to fully offset tariff problems and weak global demand, said Martin Lynge Rasmussen, a Chinese economist for capital economics. He said in a study released Monday that China is likely to further loosen monetary policy over the coming months.
Tommy Wu, chief economist at Oxford Economics, also said the country must take significant steps to stabilize growth. His company predicts economic growth of 6.1% this year and 5.7% in 2020.
The People's Bank of China could consider lowering the policy rate on medium-term credit facilities, said Chief Ting Lu China economist for the Japanese investment company Nomura. He also expects the government to ease restrictions on the real estate sector later this year to boost purchases.
Chinese officials have stated that they have enough tools to support the economy.
"China's economy is facing some downward pressure as global growth, protectionism and unilateralism slacken," said Chinese Premier Li Keqiang in an interview with Russian media released Monday by the Chinese government. "But the economy also has great resilience, great potential and room for maneuver."