| Softening US economic data spurred the Federal Reserve into decisive action this week to support growth. An even weaker set of data out of China has left investors puzzled why its government hasn't also mounted a concerted response. In fact, Chinese fiscal policy has shown evidence of tightening, not loosening. Monetary policy similarly shows no sign of alarm bells in Beijing. President Xi Jinping earlier this month did call on government officials to achieve the country's annual growth target of around 5%, but couched it in less forceful terms than usual. One school of thought says Xi and his lieutenants may be holding fire ahead of the US election. If former President Donald Trump returns to office and follows through on his pledges to ramp up tariffs on Chinese imports, then stimulus would become all the more necessary for China's economy—so it might make sense to save your bazooka. A more fundamental argument says that Xi isn't particularly unhappy with the economy. That's because the key sectors he's focused on—"new productive forces"—are doing well. Housing, the most powerful drag on growth, isn't the foundation on which he wants to build China's economic future. Advanced manufacturing, high-tech goods and green energy and transport are the keys. And they are powering ahead.  The People's Bank of China building in Beijing, Aug. 12, 2024. Bloomberg - Latin America is rewriting rules that affect the economy, stoking fears.
- Volkswagen's China challenge deepens with plant set to shut down.
- Kenya is deploying trash-eating flies to address flood risks in its capital.
- Hungary's $20 billion EV push is taking longer than thought to bear fruit.
- AI needs for Microsoft have the US restarting Three Mile Island reactor.
China's latest consumer spending figures are stark. Retail sales for the first eight months of the year were up 3.4% compared with the same period of 2023. By comparison, average growth over the three years before the pandemic was 9.3%. Behind that weakness is broad evidence of a stagnation in wages, along with downbeat sentiment—exacerbated by the real-estate slump—that's left households preferring to sock away more in savings. Some local governments have had challenges meeting payrolls in recent years as revenues from land sales dried up. Compensation caps in the financial sector and state-owned enterprises have contributed to a deterioration in expectations for both income and employment, according to JPMorgan Chase. "The biggest threats for China's consumption recovery are weak income expectations, the erosion of consumer confidence, the shrinking of upper-middle income groups and the new trend of consumption downgrade," JPMorgan economists led by Haibin Zhu wrote in a note this month. And yet policymakers' response has been limited. China's broad budget spending actually shrank in the first eight months in the year, according to Bloomberg calculations based on data released by the Ministry of Finance on Friday. As for monetary policy, China's system is notably different than those of developed market economies—where central banks' main tools are interest-rate cuts and bond purchases. In China, the state-owned banks that dominate the financial system are subject to official guidance with respect to extending or reining in the supply of credit. Officials also can sway the issuance of corporate bonds and stock. That's why a good gauge of China's overall monetary stance is the "China credit impulse" gauge, which adds up lending, debt and equity issuance as a share of the economy. The chart below illustrates the massive stimulus applied during the 2007-09 global financial crisis, as well as after China's major domestic slowdowns in 2012 and 2015, along with the pandemic year of 2020. This year, the impulse has come down since January. While broad macro stimulus may be lacking, there's plenty of support for Xi's coveted new productive forces. And that's helped make the industrial part of the economy look much cheerier than the consumption side. Industrial output climbed 5.8% in January through August, the best such reading since the distorted 2021 bounce-back from the initial Covid blow the year before. It's also only slightly off the 6.3% average during the three years before the pandemic. Some particular components stood out. Electric vehicle production posted year-on-year growth above 30% in August. In high-tech industries overall, the growth in value added was 8.6%. Exports also are booming, adding some 2 percentage points to China's growth so far this year—the second-highest contribution since 2010, according to Capital Economics. Beijing's approach is not without risk. Andrew Polk, co-founder and head of economic research at Trivium China, worries that consumer confidence levels remain depressed, the better part of two years after Covid restrictions were lifted. "You blink your eyes, and that becomes five years, and all of a sudden you're looking at maybe a lost decade," Polk said in an interview this week. "I don't really subscribe to the theory of the Japanification of China's economy. But it's not an impossible occurrence." Up to now, the leadership has "whiffed" on reinvigorating private-sector confidence and measures to stoke a property-sector rebound, Polk says. Failure to respond adequately to domestic cyclical downturns like the current one would leave China "in danger of really shifting down into a lower gear," he said. | 
No comments:
Post a Comment