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Recent Chinese data releases have painted a worrying picture for the world’s leading manufacturing economy, as PMIs, trade flows, and commodities purchases all appear to be softening in 2023. Deflation has now taken hold of both consumer and producer pricing for the first time in over two-and-a-half years as export prices have tumbled by double digits.

China’s domestic economy continues to be bogged down by its languishing real estate market, which can’t seem to gain any traction for a real recovery. Once again, a leading real estate developer, Country Garden Holdings, is on the brink of default. That spells more trouble ahead for a critical portion of China’s growth engine.

Related ETFs: iShares MSCI China ETF (MCHI), Global X MSCI China Real Estate ETF (CHIR), Global X MSCI China Industrials ETF (CHII)

Despite China’s efforts to loosen monetary policy and re-ignite growth, the rebound the economy has seen from their “zero COVID” lockdown policy in 2022 has been underwhelming. Metrics measuring the expansion of the manufacturing sector show the global leader in factory output slumping toward a continual slowing of activity. Caixin’s manufacturing PMI, for example, dipped into contraction territory for the third time this year in July’s reading of 49.2 – a 10-month low. That decline has likely played a major role in the recent downturn in China’s export capacity, which tumbled by -14.5% in July. That was the largest annual fall in exports since February 2020, when COVID-19 was shutting down factories and ports. Economists polled by The Wall Street Journal expected a sizable decline at -12.0%, but the real decline surpassed it. Compared to the first seven months of 2022, the value of China’s exports are down -5.0% thus far in 2023.

Symptoms of softness in China’s domestic economy include an ongoing five-month slide in the country’s imports, as well as anemic consumer price growth, which fell into deflation on a YoY basis in July for the first time in two years. The -0.3% annual decline in CPI was a bit less than the -0.4% fall economists surveyed by Reuters expected, but it was nonetheless a huge signal that economic growth may be about to slow materially. Reuters notes that China is the first G20 economy to report a YoY decline in its CPI since August 2021. Even more deflation in…

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