For Australia, the latest data out of China is both worrying and sort of reassuring.
Worrying because it is clear the country’s economy is slowing with the country’s factory activity contracting in December for the first time in more than two years.
But in contrast, the country’s growing services sector continues to strengthen, despite weakening retail sales data.
December’s official non-manufacturing PMI rose strongly to 53.8 from 53.4 in November, well above the 50-point mark that separates growth from contraction.
The services sector accounts for more than half of China’s economy and economist say rising wages are giving Chinese consumers more spending power.
The country’s stock market fell 25% over the year as regulators left it to investors to look after themselves instead staging an official support operation as they did when the market tanked in 2015.
For Australia and other countries, that’s a big plus and suggests that the underlying health of the Chinese financial system is stronger than it seems.
That’s not to say that debt is not a continuing problem – it is, but it hasn’t crippled the economy as many western forecasters are predicting.
But consumer demand and confidence have faltered recently in a sign of growing pressure on the economy from the impact of the trade war with the US and concerns about the health and stability of non-bank financial companies (also called shadow banks) which had helped finance the 2017 run-up in shares and some huge multi-billion offshore deals by major Chinese groups.
Showing the weaker manufacturing sector, the official Purchasing Managers’ Index (PMI) fell to 49.4 in December, below the 50-point level that separates growth from contraction, according to the National Bureau of Statistics (NBS) on Monday.
It was the first contraction since July 2016 and the weakest PMI reading since February 2016 when it came in at 49.0.
New export orders contracted for a seventh straight month on faltering external demand, with the sub-index falling to 46.6 from the previous month’s reading of 47.0.
China’s benchmark CSI 300 index ended 2018 close to 3,000, down more than 25% from where it started in 2018. The Shanghai Composite shed 24.5% in value as well, the major driver of the CSI index’s slide.
Bloomberg reckons that fall carved $US2.3 trillion in value from the value of Chinese shares over the year.
The drop topped other poor performers: Japan’s Nikkei 225 dropped 14%, the US S&P 500 was down 6.5% and the UK’s FTSE 100 fell 12.5% and the ASX 200 shed 6.9%.