China’s economy is tanking.
The world expected it to bounce back from the pandemic. Exports were supposed to boom. Investment was supposed to explode. Instead, Beijing’s best-laid plans appear set to implode.
Industrial output. Property financing. Infrastructure spends. Foreign investment.
A string of economic assessments have all come in well below expectations.
But a Friday Politburo session in Beijing put on a calm, brave face.
Premier Li Qiang presented the Chinese Communist Party’s (CCP’s) State Council with plans to boost “effective demand” inside the country’s unexpectedly stagnant economy.
Chairman Xi Jinping was nowhere to be seen.
“In response to the changing economic landscape, it is imperative to introduce policies that are more powerful,” a formal statement from his hand-picked council reads.
“Policies that meet the necessary conditions should be promptly unveiled and implemented without delay.”
What those measures will be, or when they will be implemented, was not detailed.
But it’s an admission that China’s world-leading economy has stalled.
Chairman Xi declared victory over Covid-19 late last year and suddenly ended his draconian three-year-long lockdown campaign.
This appeared to produce the desired results.
China’s economic data reported better-than-expected performances in the first quarter of this year. But the bounce-back hasn’t been sustained.
The current April-June financial quarter is on track to record a growth rate of 0 per cent.
The youth unemployment rate has spiked to 20 per cent.
Household and regional government debts are soaring.
And land sales perpetuated the property sector’s prolonged collapse with a 22 per cent fall.
Last week, China’s central bank moved to defibrillate the stalled economy. It cut several key interest rates. Analysts expect more to follow in the coming weeks.
But global concern over Beijing’s management of its post-Covid response isn’t toeing the party line.
“Those with ideologically tinted glasses tend to focus only on the difficulties and completely ignore the opportunities behind them,” an editorial in the Communist Party’s Global Times news outlet asserts.
“The root cause of their short-sightedness and misjudgment is the misguided attempt to pander to a political atmosphere of being tough on China in exchange for attention.”
By the numbers
The depth of Beijing’s economic concerns can be seen in how it has moved to manage the message.
This year it has moved to apply “national security” concerns to several critical economic reporting streams. Such secrecy prevents independent analysis of the centralised government’s assessments.
Beijing has also moved to brand multinational auditing firms as “national security” risks. Several analysts investigating whether or not Chinese corporate claims reflect reality have been arrested as “spies”.
Such actions have been causing international corporations to lose faith in Beijing’s management.
Last year, China’s share of US imports from Asia fell to 50.7 per cent from over 70 per cent in 2013. That, analysts say, reflects the current trend to “friendshore” trade deals and investment to nations less prone to the Chinese Communist Party’s fragile sensibilities.
Even China’s millionaires appear to be jumping ship. It’s expected to record a loss of 13,500 such individuals this year, up from 10,800 last year.
An extraordinary turnaround is needed to reach Chairman Xi’s relatively modest full-year growth target of “around 5 per cent”.
National Development and Reform Commission spokeswoman Meng Wei told the South China Morning Post that the Chinese economy is recovering.
“During the process of economic recovery, temporary fluctuations in certain sectors are normal,” she said.
But China’s National Statistics Bureau warned on Thursday of “mounting pressure” in the domestic economy. It said industrial production, asset investment, retail sales and trade all fell short of projections. It warned of looming deflationary pressures.
But Beijing wants the world to hear a different story.
“China has entered a new stage of development, and the transition from high-speed growth to (a) high-quality one will improve the economic structure and quality,” the Global Times asserts.
“Western media’s analysis of the Chinese economy is often unreliable, because they always exaggerate the negative side, hyping the ‘China collapse’ theory.
“If investors believe them, they will miss the opportunity to gain.”
Xi Thought
Hedge-fund manager Stanley Druckenmiller told a Bloomberg Invest Conference earlier this month that China’s entrepreneurial spirit has been quashed. And he doesn’t expect it to return any time soon.
“Looking out 10 or 15 years, I just don’t see it. Unless there’s a change in power at the top, I think that’s going to be a very undynamic economy,” he said.
“We’re expecting a sugar high and some kind of robust growth there for the next six to nine months, but looking out, I do not look at them as a big challenge to the US in terms of economic power and growth.”
But China’s State Council on Friday said its problems are based on “an increasingly complex external environment and slowdowns in global trade and investment”.
“China’s overall economy is rebounding and improving, with recovering market demand, climbing output and supply, stable prices and employment and solid advancement in high quality development,” the council said in its statement.
And, according to Chairman Xi, everything is going according to plan.
He’s been preparing his public for a “new era” of low economic growth since the start of the year.
It’s about quality over quantity, he says. But it’s about structural reform.
The property bubble has burst. But Beijing’s “economic miracle” was built on its back.
More than 70 per cent of China’s wealth is sunk in real estate.
Local governments fund themselves by selling public land to property developers.
But an overheated market has led to developers selling properties before they are built. With many unable to deliver, expectant homeowners have been saddled with their debt.
And regional governments, with their primary income stream gone, must turn to Beijing and beg for funds – and that’s on top of hiking fees for state school and university tuition by as much as 54 per cent.
Global player
China’s international trade – imports and exports – hasn’t bounced back since Chairman Xi’s lockdowns ended.
Global governments and multinational corporations are looking elsewhere.
The reasons given are many.
There are recent attempts at economic coercion against the likes of Australia, Japan, Lithuania and Norway.
There are expanding human rights concerns centred on Xinjiang, Tibet and Hong Kong.
And there are attempts to manipulate global supplies of critical minerals and materials.
Now Beijing’s moves against independent economic reporting appears to be the final straw.
According to the Atlantic Council, foreign investors have been abandoning vast amounts of Chinese assets over the past two years.
“They’ve been selling vast amounts of securities over the past two years in response to Chinese leader Xi Jinping’s policies and mounting US-China tensions,” writes senior fellow Jeremy Mark.
“Putting money in China is going to become riskier, and de-risking is only going to become more commonplace.”
It’s not an idea Beijing wants to spread.
“While Western media outlets claimed China’s economic momentum is weakening, more and more multinational CEOs and other senior executives have been in China recently in a rush to express their confidence and optimism about China’s development prospects,” the Global Times asserts.
“The comparison highlights the resilient nature of the Chinese economy in its new development stage, as well as the short-sightedness of some naysayers.”
Jamie Seidel is a freelance writer | @JamieSeidel