China: between economic slowdown and tensions with the US and Europe

The latest data on the Chinese economy shows that the recovery observed after the reopening of the economy at the end of 2022 does not appear to be as strong and durable as expected by investors. Indeed, the services PMI, published overnight, or the manufacturing PMI, which was detected at the start of the week, both show a sharp slowdown in activity, although these remain above contractionary levels at the moment.

In addition to these latest indicators, publications for the month of June showed a sharp drop in imports and exports as well as a slowdown in retail sales or industrial production. In addition, the sector’s profits have fallen sharply and are now at their lowest since April 2020, during the first lockdowns related to covid.

China’s economy could be affected by tensions with the US and Europe

While the economic slowdown is also visible in its main partners, such as the EU and the US, the tensions between these three economic zones could increase the risk of recession or, in any case, worsen the decline already observed there. .

In fact, at the end of June, the United States announced that it may impose a ban on the export of certain electronic chips to China, officially, for fear of seeing them used in Chinese weapons. Rather, this is a way to slow China’s expansion, especially in the technology sector.

China responded at the beginning of the week that from August 1 it would introduce restrictions on the export of two metals that are needed in the manufacture of certain electronic chips, gallium and germanium, and which the country controls the majority of. the world on. production.

In addition, China specified this morning that this restriction was only the beginning of the countermeasures it could introduce in response to the export bans announced by the United States.

The return of the trade war could affect the US economy

As mentioned above, the Chinese economy could be affected by an increase in trade tensions with the US, but the world’s leading power could also see certain sectors reduce their earnings outlook, starting with manufacturers of electronic chips such as NVIDIA, Broadcom or AMD.

At the moment, these companies are benefiting from the euphoria surrounding the artificial intelligence sector, and all the information about the tensions between the first two world powers has no impact on their share price.

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But fundamentally, a ban on exports to China could be really damaging to these companies, which derive an increasingly important part of their growth from the second world economy. In addition, China’s decision on metals may give them some difficulties to reach their production level and above all increase the cost of production.

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