Trade wars: Chinese exporters warn that their business is growing at its slowest pace in three years

• The Chinese government is already moving more quickly towards outright economic stimulus.
• A survey suggests that economic conditions are weakening further.

The Financial Times has reported that Chinese exporters have warned that their business is growing at its slowest pace in three years as the trade war takes a greater toll. 

Key notes from the article:

• Furthermore, more than a quarter of firms now believe that the trade war is a permanent fixture of relations with the US, and not just a passing feature of the Trump administration, according to the latest FT Confidential Research survey of exporters. 
• The June survey was conducted as hope grew among global investors that a meeting in Osaka between presidents Xi Jinping and Donald Trump at the end of the month might at least result in an agreement to withhold further tariffs and resume official dialogue. 
• Although Chinese state media have struck a defiant tone, our latest survey suggests the trade war is increasingly painful for exporters, with 37 per cent of the 200 companies polled in June saying it was having some or a very negative impact on their business. 
• While 61 per cent of exporting firms said the trade dispute was having no impact, our broader export survey showed the sector continuing to lose steam, with volume and value growth slowing sharply, and sequential and year-on-year gauges of profitability showing big falls. Our headline index fell 2.1 points from May to 50.9, its weakest reading since June 2016. 
• The FTCR China Freight Index, a survey of 200 air, rail, road and waterway logistics firms, fell 1.4 points from May to 47.5, its lowest level since last June. The survey found a growing number of firms reporting that volumes were being hit by slower business, suggesting that economic conditions are weakening further.
• In recent weeks, the government has signalled a more assertive approach to stimulus than that seen over the past year, including a loosening of restrictions on infrastructure project financing. In the event that Mr Trump and Mr Xi fail to agree, the likelihood increases that tariffs will be imposed by the US on practically all Chinese goods imports. 
• With economic conditions fragile, the Chinese government is already moving more quickly towards outright economic stimulus. The speed at which it travels to this policy position will be that much faster should the worst-case scenario become reality.

FX implications:

AUD/USD and the dollar are directly implicated by trade war news while risk-off currencies such as JPY and CHF will catch a bid on worsening sentiment and deteriorating prospects of a solution tot he Chinese/US trade war saga.