China Needs Major State Stimulus Amid ‘All-Out Deflation’
China needs to do something to turn things around. That much is clear, even if nothing else is.
This week was an unmitigated disaster for the world's second-largest economy. From terrible data to a 16-year low for the currency to a meltdown at the heart of the country's shadow banking complex, the Party's problems are proliferating.
As structural problems tend to do, China's issues are feeding off of, and back into, one another, in what Nomura's Ting Lu on Friday described as an "ongoing downw
Is coverage of China’s recession nearing the “on every cover” media peak? Is Xi getting spooked enough to reach for his stimulus bazooka? The action in commodities hints at it.
I’ve wondered why BHP and RTP have been so relatively bid. But not all miners.
Maybe a knee jerk reaction from the good old infrastructure stimulus days. But it seems that the PRC is hinting at a more consumer goods approach?
Thanks, Walt for the perspective of possible options and tools China may exercise to address their troubles. It’s interesting to consider armchair economics from the China viewpoint, not a perspective of the US or other western economies. Frankly, I’m not used to it. Normally, China’s economy is in high gear, going 120 MPH. And I think of them as wanting to be in the lead, and to “catch up” with the US. And they are definitely doing so.
In fact, for 40 years US presidents Nixon, Ford, Carter, Reagan, Bush (Sr.), Clinton, Bush (Jr.), and Obama visited China and engaged with China to encourage constructive economic and political dialogue. Both sides benefited. But since Xi has been the supreme leader and steward of Chinese prosperity and well-being, he has exercised a different approach in relations with the west, and the US in particular. He’s not being very nice. Joe Biden has recognized China’s change in posture, and Joe does not abide.
There is a reason for China to have more than a little confidence, especially now. The Global Times and Bloomberg have both reported recently that China is making breakthroughs in the development of microchips. In addition, the Guardian has noted that American firms want to invest more in Chinese chipmakers to capitalize on their success.
Since taking office, Biden has limited the flow of microchips to China and investments therein. As of July 2023, he’s considering greater restrictions, especially those related to the development of chips that can support artificial intelligence (AI).
I can understand Biden’s position and actions. While the steps he is taking are not ideal, we are not in an ideal world. Additionally, from my perspective, with regard to China, it’s not the 80s, 90s, or 00’s anymore. Hu Jintao no longer leads China. And Xi Jinping not only leads China, he puts himself and his party above his country – and everyone else.
Xi Jinping has a different style of presentation. He’s one of those “speak softly and carry a big stick” kind of guys. But he is evolving to become more of an old-fashioned “commie,” not unlike Putin himself, more than any political leader in the world.
China will continue to develop its own chips. They will compete. And they will sell their chips. But I do not disagree with holding them back a little bit by not selling them more sophisticated, western-made semiconductors. In terms of how they’re managing the state of their affairs in international relations, I think they’re creating the ongoing likelihood of negative consequences for their country, their economy, and their people, which is a shame. Even 20 years ago they were moving in a more positive direction. They’re turning inward now. They don’t seem to want to be part of the world community. It seems to me they want to dominate it.
Once upon a time I bought some Chinese stocks, but I don’t anymore. I do not trust Xi Jinping. Xi certainly doesn’t give any kind of a damn about the United States, except that he considers the US to be an obstacle, and he wants US dollars. And he would rather the Yuan was the global currency, of course. I don’t feel sorry for China right now, or for Xi, amid their current economic challenges. China has to stand up on its own two feet, just like every other country. And like everyone else, they make their own bed.