The Chinese recovery narrative, easily among the worst macro calls of 2023 so far, was dealt another blow on Wednesday when a key gauge of services sector activity came up woefully short.
The Caixin services PMI printed 53.9 for June, down markedly from May, a country mile below consensus and the worst reading since January.
This might sound dull, or otherwise barely worth mentioning, but it adds to a by now voluminous body of evidence to suggest China’s rebound is no rebound at all.
Official PMIs released last week likewise underwhelmed. The factory gauge printed in contraction territory a third month, and the combined measure of services and construction activity slipped further.
Last month, I joked that it was “China stimulus week,” a nod to the “infrastructure week” meme in the US. “It’s the same story over and over again, year in and year out,” I wrote, on June 13. “Growth falters, markets get impatient and several months later, the media says Chinese authorities are ‘mulling’ a ‘raft’ of new policies which aren’t yet ‘finalized’ and ‘may be subject to change.’ Even the copy and verbiage is the same in each successive iteration of this story.”
My point: Nobody should hold their breath. Fast forward to July and if you had (held your breath), you’d be dead.
Although the PBoC lowered repo rates and banks dutifully followed up with cuts to both LPR tenors, there’s no sign of sweeping fiscal stimulus, Chinese equities continue to struggle and authorities are engaged in an effort to brake the yuan’s slide.
Markets weren’t amused Wednesday with the Caixin print. H-shares fell some 2% for their worst day since June 21.
Xi, meanwhile, politely requested that other countries cease and desist from restricting tech exports to China. He didn’t put it quite that way, but the message was clear enough when you consider the geopolitical context.
“We should make the pie of win-win cooperation bigger,” he told the Shanghai Cooperation Organization. “More gains should be shared fairly by people across the world.”
His remarks came just two days after China moved to restrict exports of two key metals in apparent retaliation for US plans to broaden the scope of curbs aimed at curtailing Beijing’s access to advanced chips and other technologies used to develop cutting edge A.I. applications.
Janet Yellen is due in Beijing on Thursday.
I’ve seen no evidence to suggest North American schools are turning out the necessary numbers of top AI development personnel to compete with China. We may slow them down with some restrictive measures but if we don’t have the sharp minds to throw at this the end doesn’t look good at all.