A New York Times report on August 11 carried the headline “China’s Stalling Economy Puts the World on Notice.” The subject is relevant to Argentina’s foreign policy and has been the subject of discussion among the political contenders in the next presidential elections at the end of October.
One of the candidates has openly declined to even consider China as an international ally for ideological reasons. A valid statement. One could also argue that if, in reality, China will not be the engine of the world in the future, then Argentina would do better to align with another superpower.
To better analyze whether this is the end of China’s growth and the beginning of its decline, let me objectively describe the situation. The world’s second-largest economy is just entering an era of much slower growth, which could have a profound impact on the global economy.
It is also facing a spiraling property crisis, mounting local government debt, record youth unemployment, and an aging population.
However, China is confronting these problems in very appropriate terms. It is carrying out further property market easing by lowering down payments and reducing the interest rates of new and existing mortgages. Last Wednesday, Sunac China Holdings jumped 68% while the famous (or infamous) Evergrande Group closed up 83%. A Bloomberg Intelligence gauge tracking Chinese builders rose nearly 10% last Wednesday after China lowered down payments and introduced weaker mortgage rules.
It is introducing sizable fiscal support for infrastructure investment in order to help the country’s economic growth, which will pick up from the fourth quarter of this year. However, it is still facing the dual challenges of low domestic and external demand.
The latest data shows that China’s economy is continuing to recover, but the problem of sluggish demand remains prominent. With new export orders contracting and the growth in new orders slowing, China’s services sector expanded last month at the slowest rate in eight months, a private survey showed.
Along with other measures to strengthen the broader economy, China is cutting stamp duty and personal income tax, further relaxing purchase restrictions and lowering mortgage rates, providing more credit support to property developers, and expanding special funds to ensure housing project delivery.
The government is likely to push forward with another round of infrastructure stimulus, most likely paid for by raising the local government special bond quota.
U.S. President Joe Biden called the world’s second-largest economy a “ticking time bomb” because of its economic challenges. This is my take: overall, the Chinese economy is doing better than people might think.
The whole world is undergoing temporary economic adjustments. While humanity is yet to recover from the trauma caused by the coronavirus pandemic and the Ukraine conflict is dragging on, every country has its own problems to tackle. All things are bound up with each other. In a globalized era, bad news for anyone is bad news for all.
Doom and gloom?
The truth is that China’s gross domestic product grew at 5.5% in the first half of this year, according to its National Bureau of Statistics. Its growth rate has outpaced most major economies, as it has for many years.
China has been the source of more than 40% of global growth over the past decade, compared with 22% from the US and 9% from the eurozone.
While transnational investment is lackluster globally, overseas investment in China continues. For example, France, Britain, Japan, and Germany boosted investment in China in the first half of 2023 by 173%, 135%, 53% and 14%, respectively.
In particular, half of Tesla’s global deliveries came from its Shanghai factory last year, which rolls out one electric vehicle every 40 seconds on average. Starbucks now operates more than 6,500 stores in China, opening one every nine hours.
But perhaps the most valuable data point for Argentina is that more than 30% of the country’s agricultural exports, mainly soybeans and food products, go to China.
Markets are not signaling doom and gloom for China’s economy, and financial price moves are telling a different story to some of the more pessimistic forecasts for the country.
Over the past 12 months, Chinese banks have actually outperformed US banks by 13% in dollar terms.
With these numbers, China remains a highly important engine of global growth.