China's narrative of strong economic growth is all song and dance. Economists and investors aren't buying it. -- China Boss update 4.22.22
Update
What happened.
The South China Morning Post's He Huifeng last week reported that "[s]alary reductions, lay-offs, lockdowns and regulatory crackdowns are upending the lives” of China’s middle class and that "fears are spreading" over their “rising household debt."
Economists have made downward revisions to their economic-growth estimates for the year’s first quarter, noting that lockdown-inducing Omicron outbreaks have put an end to upbeat economic indicators seen in January and February.
But Beijing remains unwavering in its zero-Covid approach, fuelling worries over the mounting economic costs of staying the course – a strategy that some critics say worked better for China in its fight against less-contagious earlier variants of the virus than against Omicron.
Meanwhile, personal debt keeps rising, and even some of the most affluent members of China’s middle class are wrestling with fears over what comes next.
Why it matters.
Economists are questioning China’s recent reports of “solid” economic growth
But Chinese officials have been painting a very different picture. In a VOA News article published today, Ralph Jennings said that global economists have begun to question official reports of “solid” economic performance that seem to exclude the effects of “widespread COVID-19 lockdowns compounded by property market shocks and a tech sector crackdown in 2021.”
“Now, with the latest GDP numbers, which seem very high, you have a chorus of economists outside China who are starting to say, ‘This doesn’t seem right. The numbers don’t add up,’ and who are indeed questioning the reliability of the statistics,” said Dexter Roberts, U.S.-based senior fellow at the Atlantic Council's Asia Security Initiative and author of “The Myth of Chinese Capitalism.”
Alicia Garcia Herrero, chief Asia-Pacific economist at French investment bank Natixis told VOA News that “[t]raders, investors and others trying to grasp China’s economic reality use more granular data and that the “[m]onthly figures on trade, manufacturing, everyday consumption and joblessness” reflected “a much worse picture, especially [for] consumption, than GDP data.”
“Fool me once . . .” say investors
Moreover, President Xi is finding it hard to “reverse financial outflows” caused by global investors’ distrust of his policies and leadership, Bloomberg said. “In the third week of March, redemptions from China equity funds were the highest since early 2021, while outflows from Chinese bond funds exceeded $1 billion for the first time ever,” according to an EPFR Global report that Bloomberg cited.
Xi’s government showed little regard for the global investing community last year when it unleashed a series of crackdowns on the country’s most profitable companies, in a bid to curb “disorderly capital” and ensure the firms didn’t become more powerful than the Communist Party. The result was confusion and punishing losses for shareholders. Regulators have yet to follow through on promises made this month to ensure policies are more transparent and predictable.
Wariness toward Chinese assets has only increased since Russia attacked Ukraine just weeks after a Beijing summit reinforced the close ties between Xi and Vladimir Putin. Global investors feared the Biden administration would hit China with similar penalties, even though American officials say China has complied with U.S. sanctions and there’s no evidence to suggest otherwise.
Get ready for the “Age of Slow Growth in China,” Rhodium Group says
All in all, Rhodium Group co-founder Daniel H. Rosen would like you to know what he thinks of the hyped-up talk about China’s perennial economic success. Rosen says Beijing’s narratives are given amplification by U.S. officials and security analysts who have "emphasized the most intimidating aspects of China’s behavior and rhetoric, characterizing Beijing as the ‘pacing threat’ to the United States in all domains," in order to "rally support" for a policy shift to strategic competition.
China’s rise is far from inevitable; in fact, a long-term economic slowdown is unfolding. Rather than willfully disregard this reality, the United States should talk about it. Policymakers across the world have taken Washington’s silence about the risks to China’s economic outlook as evidence that Chinese President Xi Jinping is telling it straight when he says that the CCP is in control and has a 100-year plan to put China on top. Exposing the far less rosy reality would temper China’s appeal to middle powers as a reliable security partner and draw attention to the systemic economic risks of partnering with China on development projects. China’s brand of lending to developing countries risks undermining governance, saddling countries with debt, and obscuring hard-learned lessons about economic liberalization.
“[B]y not challenging the narrative of the inevitable rise of China and the inevitable decline of the United States, Americans are needlessly doing the CCP’s marketing work,” he says.
Go deeper.
China's property sector could be turning around, but red-hot growth may be a thing of the past (Weizhan Tang and Evelyn Cheng, CNBC news)
Read to see why some analysts think that the high growth of China's property market is a thing of the past.
China unveils support measures as lockdowns batter economy (Thomas Hale, Financial Times)
Read to learn how the Chinese government is trying to contain the economic fallout of its Covid-zero policy.
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Have a great weekend. ;)
Really good analysis Shannon, I've often wondered about that.