The economic slowdown of the Chinese economy seems to be getting worse. And this could result in the country being pushed to quickly agree to the trade agreement with the United States and undertake measures to boost the economy.

Industrial production — an important indicator for China’s economy, had grown by just 4.4 per cent in August year on year according to data released on Monday. The number is lower than the number that was reported in July when the growth in the sector was 4.8 per cent which was in turn its weakest in 17 years.

The importance of industrial production as a component of the Chinese economy is in the fact that it is a measure of the output of the critical businesses in the manufacturing, mining and utilities sectors of the country. The latest growth number is also worse than the analysts’ expectations of 5.2 per cent.

Data released for the month of August by the National Bureau of Statistics of China on Monday also showed a slowdown in growth in the retail sector at 7.5 per cent compared to the rate of 7.6 per cent in the same month a year ago.

The slowdown in the second largest economy of the world is attributed to the prolonged trade war with the US as well as a host of domestic challenges as the authorities try ot reduce reliance on debt for growth.

However in recent weeks, there has been some signals of a betterment of relations between China and the US with respect to the trade war. Last week China announced exemption of some US products from enhanced tariffs which included key agricultural products of soybeans and pork. This was the latest step among a few others that both the countries had taken in the run up to the beginning of fresh face to face talks on trade agreement between trade representatives of the two countries slated for next month in Washington.

Ken Cheung Kin Tai, chief foreign exchange strategist for Asia at Mizuho Bank in Hong Kong said that the weak numbers of growth in the Chinese economy in August reflect an “increasing downside risk to the economy” with the ongoing trade war. “Against this backdrop, it makes sense that China softened its stance on trade talks” and introduced stimulus plans in recent weeks.

Cheung added that speculations about the central bank of China would react to the slowdown has also been fueled by the weak data. In recent weeks, a number of measures to boost the country’s economy have been taken by China’s central bank – the People’s Bank of China. It slashed the reserve requirement ratio, or the amount of money that banks need to hold in reserve, for the first time in eight months earlier this month. And a new Loan Prime Rate that will become the benchmark for banks to price loans was launched by the central bank in August. This measure was aimed at spurring growth and employment and is fixed every month. That rate could be fixed lower by Chinese policymakers when it is set later this week, Cheung said.

(Adapted from CNN.com)

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