China's "bleak economic reality" limits Covid recovery, Biden’s SOTU “striking escalation” of spy balloon incident & China's new pig towers -- China Boss News 2.13.23

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The Big Story in China Business

China's "bleak economic reality" limits Covid recovery as stocks, exports and consumption drop

Stocks

“Chinese stocks were the world’s best performers in the opening weeks of 2023,” but a recent “pullback” in which “securities have suffered a beating” has caused “doubts” in the “durability of the China reopening bets,” South China Morning Post reported. Worse, “[t]he bleak economic reality” for 2023 threatens to “offset current optimism” that China can make an economic comeback, experts and news staff said.

SCMP:

Industrial activity, a major driver for the Chinese economy, is likely to disappoint as infrastructure and manufacturing investments stay weak as local governments struggle with a fiscal budget crunch.

Chinese banks extended a record 4.9 trillion yuan (US$720.7 billion) in new loans in January, according to central bank data, to support the Covid-battered economy. Yet, loans to households remained sluggish, suggesting weak sentiment amid job insecurity and property market headwinds, ING Bank said in a note on Friday.

China’s economy “is still not firing on all cylinders,” strategists including Julia Wang at JPMorgan Private Bank said in a report on Friday. “Housing sector-related data is still quite weak. Income growth will likely recover with a lag. It still continues to be a question of confidence in the sector.”

Exports

CNBC’s Evelyen Cheng said declining U.S. demand was also hitting China’s factories and firms in the retail exports sector, causing employee layoffs. “China’s exports to the U.S. in the toys, games and sports category” which make up nearly 6% of total for the US, “saw a slight drop in 2022” while inventory backed-up due to Covid shipping gridlocks.

Cheng, CNBC:

“Retail, anything consumer discretionary, they were hit quite hard. It was really a combination of high inventory and demand dropping quite a lot for the export markets,” said Johan Annell, partner at Asia Perspective, a consulting firm that works primarily with Northern European companies operating in East and Southeast Asia.

He said consumer electronics was seeing a similar situation.

Consumption

Prospects for China’s post-Covid recovery look even worse if large numbers of Chinese consumers choose to pay down debt rather than spend. Earlier this week China "clashed" with the IMF over the latter's announcement that Beijing wasn't doing enough to support the country's property sector. IMF economists had said that "China's real estate market is in an unresolved crisis” that will “remain a risk and also constrain households that are overexposed to the property sector, and will have cash tied up and their savings tied up which will be a handicap for the broader economic recovery.”

That could already be happening, according to a separate SCMP report which warned that “Chinese homeowners began the trend of early mortgage-clearing last year, when rates fell to a new low and household savings climbed to a new high.”

SCMP:

“Many homeowners want to reduce their interest burden,” said Hu Jinghui, chief economist at the Jinghui Think Tank.

“Whether it is lowering interest rates or the down payment ratio, what the government really wants is to spur consumption. But households are reducing their balance sheets and deleveraging instead.”

For the rest of SCMP’s report, China reopening ‘overhyped’ as stock losses hit latecomers amid fresh US spat, click here. For CNBC’s update, Pressure on China’s factories grows as U.S. demand falls, click here. For SCMP’s consumption update, Chinese homeowners pay down mortgages, threatening Beijing’s consumption drive, click here.

Law and International Xi

Biden’s SOTU “striking escalation” of Chinese spy balloon incident