User blogs

China’s economy is plainly staring at a flickery future

The global economic system is going through an unprecedented period. Developed market central banks have begun to raise interest rates sharply and have initiated quantitative tightening at the same time. The US Federal Reserve’s balance sheet that had expanded rapidly from about $4 trillion to about $9 trillion in response to the covid pandemic has gradually begun to shrink.To get more China economy news, you can visit shine news official website.

In contrast, the People’s Bank of China (PBoC), after having held the line for much of the early covid period, has begun to ease monetary policy from around April this year. M2, the broad measure of money supply, is expanding at a rate of about 12% year-on-year in China and is now greater than credit growth, which is at about 10% year-on-year. Economic growth, meanwhile, has not responded in the wake of continuing lockdowns. In economics speak, these are early signs that China’s money supply has begun to “push on a string" and further stimulus may have to come from fiscal policy.

The PBoC balance sheet size is about 38 trillion Chinese Yuan (CNY) or about $5.6 trillion (62% of the size of the US Fed’s). The PBoC balance sheet, which has been on steady expansion through the years, appears to have qualitatively shifted its approach in 2016. Until then, the expansion was in lock-step growth with China’s current account and its growth in foreign exchange reserves. Since 2016, the PBoC balance sheet has grown by increasing lending to the country’s banking system. China’s foreign exchange reserves peaked at about $4 trillion then and have declined by nearly a trillion dollars. At the same time, Chinese current account surplus has declined from an average of about 3-4% of gross domestic product (GDP) before 2016 to less than 2% now, so structurally it seems likely that its pace of currency reserve accumulation will continue to drop.

In other words, China’s economy is slowly becoming less international and more domestic. As that happens, China’s policymakers are beginning to find that their tools for domestic macro-economic management, both monetary and fiscal, are not sufficiently diverse and well tested. China’s go-to policy for domestic expansion has been to stimulate its real-estate sector. True to form, 33 new measures were introduced in the summer to invigorate the sector. However, these measures contradict one pillar of ‘Xi Xinping thought’, which is to deleverage and clean up the real-estate sector, an activity that has been ongoing for some time. Therefore, despite these stimulus measures, China’s residential sector declined 28% year-on-year in July. Meanwhile, Chinese retail sales have slowed to about 3% for the first half of the year, which apart from the directly covid-affected quarters of 2021 and 2022, is the slowest it has been for 30 years. At the same time, even as economic growth slows, inflation in China is gradually increasing and clocked 2.7% in July. The CNY has declined by about 10% from the beginning of this year and this is one channel through which inflation is being imported into the country.

It seems rather likely that China will push both monetary and fiscal easing in an attempt to get out of the economic quagmire that it finds itself in. The country will be doing so at a moment when inflationary pressures are not benign. Before the pandemic, China has generally been careful to keep its fiscal balance in a narrow range as a proportion of GDP. The pandemic, its ageing population and its trade war with the US have begun to strain China’s ability to use fiscal policy too aggressively. Local governments have faced revenue shortfalls, requiring an increased federal transfer. The sale of land-use rights is a plug, but this has been disappointing because of simultaneous tightening of regulations in the real estate sector. In a flailing attempt, increased property tax increases have been proposed in a few jurisdictions, but this medicine may be worse than the disease and has therefore been postponed.
China has already put in place tax cuts for corporates and individuals. Even though China categorically denies that there will be “overborrowing from the future", it seems possible that China may be forced to follow the US of 2020 by doing income transfers in a desperate attempt to stimulate retail spending. At the very least, this will have to be done in some form to ensure that property buyers regain confidence in a system that now appears to be completely broken.

For the rest of the world, this adds another element to the unprecedented global situation. Developed markets and some emerging markets (including India) are tightening policy at the same time as China is easing. If much of that easing is transmitted through a lower currency value, then it will have the de facto effect of a competitive devaluation by China, and other exporting economies will suffer as a consequence. If China holds its currency relatively stable from here, then with untested domestic transmission mechanisms, it risks stagflation.

China registered an economic growth of 4.8 per cent in the first three months of 2022. However, the first quarter growth was well below the ruling Communist Party's official target of 5.5 per cent for the entire year, according to official data released on Monday.To get more Shanghai economy news, you can visit shine news official website.

The country's gross domestic product grew 4.8 per cent year on year during January to March, picking up pace from a 4 per cent increase in the fourth quarter last year, data from the National Bureau of Statistics (NBS) showed on Monday.

In India, the financial year is calculated from April 1 to March 31. However, in China, the fiscal year is the same as the calendar year. So, the financial year in China is calculated from January 1 to December 31.The economic growth remained below the official estimates as fresh outbreaks of Coronavirus prompted the shutdown of major industrial cities, including the financial hub of Shanghai.

Also, there was a slump triggered by tighter government controls on the use of debt by China's vast real estate industry. Forecasters have said that will be hard to meet without more government stimulus spending, according to The Associated Press (AP).

Retail sales in China fell 3.5 percent year-on-year in March. This was the first contraction since August 2020, according to a report in China's official media, Global Times.Observers of China's economy also cited "unprecedented downward pressure since the first quarter of 2020 due to coronavirus flare-ups, supply chain snags and external uncertainties arising from the Russia-Ukraine conflict," as per the Global Times report.

Earlier, China set its gross domestic product (GDP) growth target for 2022 at around 5.5 per cent to focus on slower growth in order to stabilise its economic fundamentals this year, as the world's second-largest economy beefed up supportive measures to shore up growth against strong headwinds.

"We must be aware that the domestic and international environment is becoming increasingly complicated and uncertain, and that economic development is facing significant difficulties and challenges," NBS spokesperson Fu Linghui said on the Q1 figures.

"With regard to the trend of the next stage, although there is some pressure in the short term on the economy from the perspective of the whole year, China’s economy is expected to maintain a recovery trend of development," he said.

Last Friday, China’s central bank, in a much-anticipated move, cut its reserve requirement ratio (RRR), or the amount of cash that banks must hold in reserve, to shore up its slowing economy amid growing headwinds.

The current surge of the Omicron virus in China which is sending one city after another into prolonged lockdowns was largely expected to have an adverse impact on the economy.

After big cities like Xian and Shenzhen, a lockdown was imposed in Shanghai, China’s biggest business and economic hub.

The city is in the third week of lockdown. The city of 26 million came to a standstill as it continuously reported about 30,000 cases in the last two weeks with no let-up.

European sales for Guangdong-based coffee machine company HiBrew have tapered off after a sterling run last year when pent-up global demand drove up purchases of Chinese consumer goods. To get more latest china business news, you can visit shine news official website.

Sales have fallen 30% to 40% so far this year, a sharp contrast to the 70% growth in business last year, according to General Manager Zeng Qiuping.

Rising living costs in the U.S. and Europe as well as importers waiting for potential U.S.-China tariff cuts contributed to the downturn, Zeng said. But he is optimistic the current lull is just a blip and overseas demand will return.While HiBrew doesn’t sell much to the U.S., Zeng said fellow exporters tell him orders from the U.S. have also diminished.

Separately, freight costs are starting to fall now after surging to record levels during the pandemic, signaling that demand for logistics needed for deliveries is coming off the boil, analysts say.That’s good news for exporters and importers, but there’s another red flag.

While traders previously had to cope with supply chain congestions and upheavals, they may now need to grapple with falling demand especially in developed economies. These dynamics point to recessionary pressure, analysts warned.Indeed, spot ocean freight rates between China and the U.S. east and west coast have fallen, said Shabsie Levy, founder of Shifl, a digital supply chain platform.

He attributed the declines to falling consumer demand in the U.S. and said many U.S. retailers are sitting on excess inventory.

Ocean freight rates are intrinsically connected to the retail industry as ocean freight make up over half of all imports into the country, he added.Falling retail demand has pulled down ocean spot freight rates and continues to do so,” Levy said. “I would not call this reduction in demand a recession yet, but things seem to be heading towards troubled waters.”

“On an anecdotal level, some customers are experiencing a drop in sales especially in certain high value items and less essential items.”During the pandemic, shipping costs surged as a result of supply chain disruptions and lockdowns.

Spot ocean freight rates between China and the U.S. were nearly 3.5 times higher between January 2020 and May this year, Shifl said.The higher logistics costs have either been absorbed by manufacturers or passed onto consumers, driving up inflation.

But now, new import orders from the U.S. have slowed and businesses like Samsung U.S., the seventh-largest importer into the U.S., has halved its planned inventory order for July, according to Shifl data.The second-largest American importer, Target also announced its intentions to cut inventory orders because of ballooning inventory, according to Shifl.

Even after Shanghai’s lockdown was lifted, shippers received a lukewarm response from importers, Levy said. The Drewry’s composite World Container Index, which tracks freight costs of 40-foot container on major routes, has fallen over 30% since September.

Costs of containers across major routes — such as Shanghai to New York, and Shanghai to Rotterdam —have dropped by up to 24% compared to last year. “The U.S. distribution system is stuffed with stuff. Business inventories in April were up nearly 18% from a year ago,” Marc Levinson, an independent economist, said on LinkedIn.

“The reason for the excess inventory? Simply enough, consumers have stopped spending with abandon. As shopping habits revert to pre-pandemic norms, inflation decimates buying power, and home sales stall, the demand for consumer goods is stalling as well.”

1. THE GLOBAL ECONOMY: China's economy is teetering on the brink of disaster. If the bottom falls out, the whole world could be dragged down by the collapse of its second-largest economy. In the meantime, some economists worry lean times could push Beijing to ratchet up nationalist sentiment.To get more Shanghai economy news, you can visit shine news official website.

Beijing is trying to redefine its economy: "For decades, the country relied on cheap labor and eye-popping amounts of debt, handed out by government-owned banks, to fuel economic growth. Now the country needs people to actually use, and pay for, everything that's been built," Insider's Linette Lopez writes.
The Communist Party is responding by further isolating itself: Chinese socialism is reverting to a model not seen in decades, with tighter state control over much of the economy. Economists expect this ideological shift to slow growth even more, which in turn would make China's attempts to transform its economy that much more precarious.
The fallout could affect us all: Morgan Stanley estimates that from 2022 to 2025, China's growth will be 0.4 percentage points lower each year than previously estimated — and that's the best-case scenario.

China doesn't have many friends at the moment either: Under President Xi Jinping, China has become more bellicose on the world stage. The European Union torpedoed a trade deal with Beijing after China sanctioned members of the European Parliament for speaking out against human-rights abuses in the Xinjiang region. And the US is upset China isn't buying as many American goods as it promised to under a trade deal with the Trump administration.
2. Facebook insiders say Mark Zuckerberg chose growth over safety: The Facebook CEO personally oversaw the company's decision last year to censor government dissidents to preserve the social network's access to the lucrative Vietnam market, The Washington Post reports. Zuckerberg's role was revealed by a trove of internal Facebook documents connected to the whistleblower Frances Haugen that have been obtained by a growing number of news organizations. Facebook in turn denied that decisions made by Zuckerberg "cause harm" and argued the documents were taken out of context. Key quote: "This is not a democracy, it's an authoritarian state," one expert told The Post of Zuckerberg's amount of power.

3. Democrats continue to haggle over their massive spending plan: President Joe Biden and top congressional leaders are pushing for a deal on the now roughly $1.75 trillion plan by the end of the week, The New York Times reports. Lawmakers continue to disagree about any changes to Medicare and Medicaid, a new family-leave program, and additional efforts meant to lower prescription-drug prices and address the climate crisis. There's also still hope the final sticker price will be a bit higher, but a final deal is expected to be far below the initial $3.5 trillion outlined in the party's budget plan.

4. These are the lobbyists to watch as lawmakers debate marijuana legalization: Congress is more supportive of cannabis than ever before. Top Senate Democrats are drafting a bill on legalizing and regulating pot. Many Republicans support legislation that would help more cannabis businesses access banks rather than continue to have them rely solely on cash. All of this has resulted in a record number of lobbyists jumping in on the cause.

5. US, EU, and other nations denounce Sudanese coup: The White House moved to immediately suspend $700 million in financial assistance intended to help Sudan transition to a fully civilian government, the Associated Press reports. Here's an explainer on what led up to the coup and what's ahead for Sudan.

6. New York police union sues over vaccine mandate: With one week left to get vaccinated, New York City's largest police union, the Police Benevolent Association, filed a lawsuit over the state's vaccination mandate for municipal employees, The Times reports. Nearly 70% of NYPD employees have received at least one dose of a COVID-19 vaccine.

7. A never-before-seen Trump deposition is expected to be shown in May: A judge has set a May trial date for a lawsuit that's expected to include a video deposition of former President Donald Trump taken earlier this month. The trial is for a civil lawsuit brought by a group of protesters who allege that Trump's security team assaulted them at a 2015 rally outside Trump Tower in New York. Numerous civil lawsuits have moved ahead against Trump now that he's no longer president.

8. Chicago is on the verge of having one of the nation's largest basic-income programs: City councilors are expected to vote this week "on ​​giving 5,000 low-income households $500 per month each using federal funding from the pandemic stimulus package enacted this year," The Post reports. The program would be enacted on a one-year basis, but Mayor Lori Lightfoot has received pushback for directing federal funding to UBI instead of a violence-prevention program. Dozens of cities are said to be trying or considering similar experiments.

9. Over half of Afghanistan's citizens are expected to have trouble finding food this winter: Humanitarian-aid officials are highlighting the country's crippling economic crisis amid the Taliban takeover as a main catalyst in the looming food shortage. Even before the collapse of the Afghan government over the summer, the country was threatened by the COVID-19 pandemic and severe droughts, according to the World Food Programme.

10. Dave Chappelle says he's willing to meet with the trans community: Chappelle issued his longest response yet to critics of his recent
Netflix
special, saying he's "not bending to anybody's demands," CNN reports. "This has nothing to do with them," Chappelle said of LGBTQ communities during a set over the weekend. "It's about corporate interest and what I can say and what I cannot say.

David Fong made his way from a poor village in central China to the southern boomtown of Shenzhen as a young man in 1997. Over the next 25 years he worked for a succession of overseas manufacturers before building his own multi-million dollar business making everything from schoolbags to toothbrushes.To get more latest china business news, you can visit shine news official website.

Now 47, he has plans to branch out internationally by building internet-connected consumer devices. But after two years of coronavirus lockdowns that have pushed up the price of shipping and battered consumers' confidence, he worries if his business will survive at all.I hope we make it through the year," said Fong, surrounded by talking bears, machine parts and his company's catalogues in his top-floor office overlooking gleaming towers in an area of Shenzhen once filled with sprawling factories. "It's a tough moment for a business."

Fong's story of rags to riches, now threatened by a wider slowdown worsened by the coronavirus, mirrors that of his adopted city.Created in 1979 in the first wave of China's economic reforms, which allowed private enterprise to play a role in the state-controlled system, Shenzhen transformed itself from a collection of agricultural villages into a major world port that is home to some of China's leading technology, finance, real estate and manufacturing companies.

For the last four decades, the city posted at least 20% annual economic growth. As recently as October, forecasting firm Oxford Economics predicted that Shenzhen would be the world's fastest-growing city between 2020 and 2022.But it has since lost that crown to San Jose in California's Silicon Valley. Shenzhen posted overall economic growth of only 2% in the first quarter of this year, the lowest-ever figure for the city, aside from the first quarter of 2020 when the first wave of coronavirus infections brought the country to a standstill.

Shenzhen remains China's biggest goods exporter, but its overseas shipments fell nearly 14% in March, hampered by a COVID lockdown that caused bottlenecks at its port.

The city has long been seen as among the best and most dynamic places for business in China and a triumph of the country's economic reforms. President Xi Jinping called it the 'miracle' city when he visited in 2019.

If Shenzhen is in trouble, that is a warning sign for the world's second-largest economy. The city is "the canary in the mine shaft," said Richard Holt, director of global cities research at Oxford Economics, adding that his team is keeping a close eye on Shenzhen.

Fong, who sells his goods mostly to domestic customers, said sales are down about 40% from 20 million yuan ($3 million) in 2020, hurt by the recent two-month lockdown in Shanghai and a general decline in consumer confidence. China's strict travel rules mean he has not been able to visit Europe to try to expand there.Shenzhen, now a city of some 18 million people, has been hit by a succession of blows from inside and outside the country.

Shenzhen-based telecom equipment makers Huawei Technologies and ZTE Corp (000063.SZ) were placed on U.S. trade blacklists over alleged security concerns and illegally shipping U.S. technology to Iran respectively. Huawei denies wrongdoing, while ZTE exited probation in March five years after pleading guilty.

Another of the city's major companies, top-selling property developer China Evergrande, sparked fears of a collapse last year under its heavy debts that would have wreaked havoc with China's financial system. Down the road, Ping An Insurance Group Co, China's largest insurer, took big losses on property-related investments.

Even smaller firms have suffered. last year cracked down on how sellers do business on the platform, impacting more than 50,000 e-commerce traders, many based in the city, the Shenzhen Cross-border E-commerce Association said.

On top of that, Shenzhen was locked down for a week in March to prevent the spread of the coronavirus. That lockdown, and those in other Chinese cities, depressed domestic demand for goods made in Shenzhen. The city's 2% growth in the first quarter was less than half of China's overall 4.8% growth rate.

Business registrations also fell by almost a third in that time. City authorities are sticking to their 6% growth target for this year, set in April, but the slowdown has sparked alarm in China's establishment.

"Shenzhen's economy is faltering, leaning back, and sluggish, while some are doubting if Shenzhen has enough momentum," Song Ding, a director at the state-linked think tank China Development Institute, wrote in a May essay.