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China September Inflation and Trade Balance

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The world’s second largest economy is in focus on Friday with the release of some key data at a crucial juncture before the CCP general meeting. There had been some expectations that the zero-Covid policy might be relaxed after the meeting. But reports so far seem to indicate that this policy which has weighed on economic growth in the country will continue. The latest city to see lockdowns is Anshan, in the center of Liaoning province, a major steel producing location.

Generalized lack of consumer appetite and risk aversion from major Chinese companies would be expected to dent appetite for imported raw materials. Additionally, production halts due to zero-covid could continue to impact supply chains. Particularly of concern through September and October when Chinese exports significantly increase to stock shelves ahead of the holidays.

Trade data provides mixed outlook

China’s September trade balance is expected to increase to $81.3B from $79.4B reported in August. And that is despite the strengthening dollar, which could help support larger Chinese firms. On the other hand, it’s a product of a disconnect between imports and exports, which could worry exporters to China, such as Australia, Japan and Europe.

Chinese exports are forecast to have slowed to 4.8% growth compared to 7.1% prior, an unusual situation for the period. Meanwhile, imports are expected to have increased by just 1.0%, although that’s an improvement over the 0.3% growth in August.

Keeping prices in line

In the context of global inflation concerns, Chinese prices are particularly relevant as a primary supplier of a large part of the globe. The weakening Chinese currency has helped reduce the price of exported goods, which is generally positive for inflation trends. However, if inflation were to pick up in China, it could overcome the benefit from the weaker currency.

Chinese monthly inflation is projected to accelerate to 0.3% in September from -0.1% in August. Meanwhile, producer prices are expected to decelerate to 1% compared to 2.3% prior. That figure is even more relevant for global economic prospects, as Chinese producer prices filter through to exports in most of the world.

Forward events

China’s Communist Party Congress will start on Sunday, with significant expectations of what will happen with the leadership of the country. No major change in policy is expected, because there is near unanimous consensus that Xi will remain the country’s leader.

What is up for debate is how that process will be carried out. One option is to break precedent by reelecting him as General Secretary of the party for a third term. A way to avoid that break would be to elect him as Chairman of the party, a title that hasn’t been used since the days of Mao.

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