It seems that Trump wasn’t lying when he said that “China needs the deal more than me.” This time the distress signal came from the industrial sector in China, where profits declined at the fastest pace in eight months in October, what also didn’t live up to expectations of the seasonal autumn “bump”:

Industrial profits fell 9.9% year on year, data showed on Wednesday. It was only worse in January-February of this year, when profits naturally fall due to the celebration of the Lunar New Year. In September, profit also turned out to be negative – -5.3%.

The “poisonous mix” for firms was deflation of production prices and rising borrowing costs, despite the efforts of the PBOC. This suggests that external demand for final goods fell, which affected the demand of these enterprises and also for intermediate goods, i.e. for raw materials. Credit impulses of the Central Bank, as a result, cannot get through “bottlenecks”, for example, increased risks of default on firms’ debts, which leads to a tightening of credit ratings. The “traditional channel” of shadow lending (that is, bypassing banks) cannot come to the rescue because of the government crackdown.

The production price index, which changes precede the changes in corporate profit, fell to the lowest level for three years in October. This was also reflected in the manufacturing PMI, where the downtrend has been going on for six months. The subcomponent of export orders has been declining for 17 consecutive months.

Last Tuesday, the NBK played in the big league and lowered the medium-term financing rate, for the first time in several years, since a consistent 7-fold decrease in the reserve ratio has little effect in terms of economy support.

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