The Chinese economy’s in a pretty tough spot. Maybe you noticed.
Sweeping measures unveiled Friday underscored Beijing’s growing alarm at a property crisis of the Party’s own making. In addition to dropping a national mortgage rate floor, the PBoC stepped in to help finance the purchase of hundreds of billions of yuan in unsold homes.
Although the real estate meltdown’s a multi-faceted problem, ongoing price declines for residential properties despite a seven-quarter drop in mortgage rates (to record lows) are indicative of a pervasive domestic demand problem which the Party’s proven powerless to counteract. Simply put: Consumers are unresponsive.
Credit provision’s moribund. In fact, aggregate credit actually shrank in April from March amid a contraction in shadow banking and government bond repayments. It was the first drop on record. More importantly, perhaps, new yuan loans were just 731 billion, nearly 200 billion less than expected.
The stock of outstanding loans grew just 9.1% last month, the slowest pace since… well, since ever, as far as I can tell.
With that in mind, it was no surprise on Friday when the NBS said retail sales rose a mere 2.3% in April from a year ago.
That was the worst showing since declines seen during the tumultuous final months of 2022, when Xi scrapped COVID curbs amid nationwide street protests.
When it comes to comps, we’re now lapping the laps, so to speak. Consumer spending posted outsized YoY gains this time last year thanks to the easy comparison with spring of 2022, when retail sales plunged during the Shanghai lockdowns. Suffice to say it’s difficult to make definitive statements about the data, but what we can say is that retail sales are tepid.
Industrial output, by contrast, rose nearly 7% in April, according to Friday’s data. That was better than expected and underscores the suspicion that China’s leaning on its factories to support the economy. That’s problematic. Potentially.
If China’s “two-speed recovery” is in part the product of a witting effort to juice factory output irrespective of domestic demand, it suggests the Party’s countenancing (encouraging, even) overcapacity, comfortable in the notion they can export their way out of what, in the Chinese context, counts as a “recession.”
To the extent that’s true, it validates US concerns as expressed to China’s leadership by Janet Yellen during an otherwise cordial visit last month, and as articulated this week by Lael Brainard, who charged Beijing with “grow[ing] at the expense of others by continuing to invest despite excess capacity.”
Long story short, China’s courting tariffs. The country’s domestic demand problem’s already manifesting in a deluge of cheap products into foreign markets, and the juxtaposition on display in Friday’s data (i.e., between lackluster retail sales and robust industrial output growth) suggests that dynamic’s likely to continue. Just one more geopolitical flashpoint in a world full of them.
Kind of ironic that this Marxist Paradise the China is, the party, and the people basically own the means of production and yet the people remain proletarian
This has always been one of the greatest defining differences between soviet style marxism and chinese style marxism. If you are wanting a headache study both. I have thought, there is not often a discernable difference in overall outcome for the proletarian. However I have not conducted any good study of the differences and outcomes, more based on general impressions. Long ago in a far away time (prior to Murdoch takeover of WSJ) I read an editorial that promoted the thought that state sponsored capitalism can be a sustainable economic system. I have regarded that assessment to be a, mostly inconsequential to me, truism.
Ah, the editors must have been thinking of the Singapore system.
As to the differences in ideologies between the two countries, how can one forget that during the later Mao era, the three enemies of the nation were the “American imperialists, Soviet revisionists and All of their Running Dogs”
Those of you curious about recent history in Beijing, check out the bios of Liu Shaoqi
and Lin Biao. Xi is doing nothing new.
The good old days are back!
I’m quite possibly past my “enjoy by” date, but I don’t understand Lael Brainard’s assertion that China was somehow fostering fake growth by investing when it has excess capacity. Growth is about output not capacity. If you have excess capacity and add more, output, cet par, does not increase. Profits will decrease, however.