According to Fathom’s China Momentum Indicator (CMI 2.0), the slowdown in China’s economy persisted into the New Year, with growth slipping 0.2 percentage points to 6.3% in the twelve months to February — the eighth consecutive fall.
Despite the usual discrepancies in China’s official data, there remains little evidence that household consumption is picking up the slack from increasingly unproductive investment decisions, with retail sales growth continuing to slow. In fact, annual growth momentum softened across nine of the ten sub-indicators that make up our CMI 2.0, supporting our view that growth will weaken further from here, averaging 6.1% in 2018.
President Xi is at the beginning of what is set to be a tough second term; underlying problems in China’s economy are becoming more acute and the need to rebalance is rising, as discussed in more detail in our note ‘China is due a banking crisis’. All this comes as Xi’s flagship project, the One Belt One Road initiative, begins to plough Chinese money into participating countries — many of which have a sovereign credit rating below investment grade.
