The problem is the “trade dispute”?

WSJ:

Behind the scenes, officials in the gated Zhongnanhai leadership compound are coming to a stark conclusion, according to people involved in the discussions: The trade dispute is short-circuiting growth.

The Trump administration’s trade offensive, say the people and business executives, is hitting China’s export-oriented manufacturing sector especially hard, reducing new orders for business and forcing factories to cut production and delay decisions on investing and hiring.

Beijing has been trying for years to make the economy less manufacturing dependent and more oriented toward domestic services. Still, the factory sector accounts for a little less than a third of all economic output.

In December, both big, state-owned companies and small, private ones reported a drop in new orders, resulting in an official measure of factory activity hitting its lowest level in nearly three years. Profits from big Chinese industrial firms, official data show, also declined in November for the first time in three years.

In the southern province of Guangdong, the country’s export hub for electronics, chemicals and auto parts, the local government was recently forced by the National Bureau of Statistics to suspend publication of a monthly indicator of regional manufacturing activity that had been trending lower. Beijing said the province lacked permission to produce the local survey of factories, which has been publishing since 2011.

“The purchasing managers’ survey conducted by the Guangdong Department of Industry and Information Technology was an illegal activity,” the statistics bureau said in a statement.

Small, private entrepreneurs, already struggling with higher costs of funding compared with bigger state-owned enterprises, are bearing a large share of the manufacturing slowdown.

“We didn’t feel anything even during the 2008 global financial crisis,” said Shao Danping, an engineer-turned-entrepreneur who owns a Shenzhen factory that makes printing devices. Now machines in the three-story facility are largely sitting idle, and half of the factory’s first floor has been rented out to another company. Her products haven’t been hit directly by tariffs, but potential customers are looking outside China for suppliers, she said. “The trade war is really killing our business.”

The slowdown goes beyond manufacturing. Chinese consumers have cut back, resulting in a slump in sales of cars and other goods. Apple Inc. reported a sales shortfall last week in part because of troubles in China. Meanwhile, despite being prodded by Beijing to spend again on infrastructure and other big-ticket projects, many local governments are already stretched after years of spending on debt-driven projects.

Some government advisers and economists estimate that China’s officially recorded growth rate in the fourth quarter fell below 6.5%, a figure disputed by many analysts and investors. While that is high by global standards, it would be the weakest pace of growth since the financial crisis.

The slowdown could give Mr. Xi’s advisers a greater sense of urgency to hash out a trade deal with U.S. negotiators when the two sides sit down in Beijing this week. Just a few months ago, when the economy was still performing within expectations, Mr. Xi had adopted a largely bare-knuckle approach to Washington’s trade-clash escalations, vowing to match President Trump’s tariff threats dollar for dollar.

The “trade dispute” may be a little problem, but leverage is the bigger problem. It will be very interesting (interesting????) to see where this Taiwan talk goes.

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