December 11, 2023 - 7:00am
Open a Western business newspaper and one would probably come away thinking that the Chinese economy is doing poorly, or perhaps even on the verge of collapse. While it is true that the country’s economy continues to suffer from structural problems, this perception is not just wrong but risks undermining the credibility of Anglophone publications and the capacity for our policymakers to make rational decisions.
Last week Chinese price data showed mild deflation, a data point out of which the Western financial press made hay. “China’s deflation worsens as economic pressures mount”, read the Financial Times headline. Bloomberg ran with “China’s consumer price drop worsens, fuelling deflation fears”. The mild deflation that is taking place in China does indeed stem from structural problems in the economy — especially the fact that it is overly reliant on investment spending and insufficiently reliant on consumer spending. But, at a certain point, the negative press becomes outright misleading.
Two other data points were released last week which show the Chinese economy growing robustly. The first came from the private sector Caixin Services Purchasing Managers Index survey, which showed stronger than expected growth in the very sector about which bearish commentators have raised concerns.
Interestingly, the private sector surveys of the Chinese services sector show it expanding quicker than the official Chinese government studies which showed a mild contraction in November. Those who accuse the Chinese of inventing economic statistics would do well to explain why government surveys are more conservative than their private sector equivalents. Whatever way one looks at it, the Chinese services sector is now expanding.
Then there is Chinese export data, which showed exports expanding for the first time in seven months. Combined with the service sector data, this shows a broad-based expansion of the Chinese economy. Not a veritable economic boom, it must be stressed, but continuous growth that is consistent with the IMF’s own projections. These show that Beijing will comfortably meet its 5% growth target this year — a projection China bears seem to ignore when they pass judgement on the economy.
There are rumours that China may have advanced in its capacity to produce semiconductors. A specialist hardware website notes how a recent Huawei laptop listing suggests that the Chinese have broken the 5 nanometer chip barrier. If the listing is correct, it suggests that China has advanced even further than the 7 nanometer processor found in the new Huawei Mate 60 smartphone. The phone shocked Western analysts who thought that such technology was beyond the production capacity of the Chinese. It increasingly looks like the American-led chip sanctions are just pressuring China to produce the needed technology domestically, and thereby undermining the competitiveness of incumbent Western players.
The Chinese economy will not grow at the runaway rates it did in the 2000s and 2010s. No one expects this now that the average Chinese person has become wealthier. Indeed, the Chinese government’s own growth targets reflect this new reality. But at a certain point, the obsessive bearishness about China is discrediting. Last year at a conference, Fang Xinghai, vice-chair of the China Securities Regulatory Commission, stated: “I would advise international investors to find out what’s really going on in China and what’s the real intention of our government by themselves. Don’t read too much of the international media.” In response to this, UBS Chairman Colm Kelleher said that he and his colleagues were not reading Western media on the issue.
How long can the financial papers continue to push their bearish China narrative without discrediting themselves? More importantly, who exactly do they think they are helping? Policymakers benefit from being well-informed, and businesspeople who actually engage with China will quickly turn to other news sources, as Kelleher alluded to last year. Critical stories on China may make Westerners who have recently soured on the country feel good. Yet they are nothing but a soporific, and the effects cannot last forever.
Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics
philippilk
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
SubscribeThe comments here about Chinese semiconductor technology are just plain ignorant. The author has chosen to believe an unsubstantiated rumour which is almost certainly inaccurate. If he’d done further checking or understood this area, he would have realised this.
Such rumours may well shock “Western analysts” almost none of whom know what they are preaching about. Anyone who works in the industry knows just how hard producing 5nm chips in serious volumes with decent yield actually is and will not be fooled.
Apart from that, what is the author complaining about here ? The fact that we have a free press (remember, China does not) ? We know that the media tends to operate as a herd and opinion overshoots one way and then the other. It’s currently swung back from “China is booming” to “China is bust”. Credit the readers of business papers with the intelligence to filter through the noise here.
Low pass filtering all the noise here and looking at the medium and longer term, the US is in a far better position than China. The US has many problems, but not fundamental demographic and structural ones like China (an economy in which 30% is housing/construction and there are more flats than people is not sustainable).
Surely the most fundamental issue is, can we ever trust the validity of any information coming out of China, including economic data. There is no means of verifying it and every reason to believe it is as manipulated as the Chinese people themselves.
Agree. Any data that does not look good, China will hide it. For example, China has recently stopped reporting their youth unemployment rate, which was last reported to be pushing 21%. Some argued that even this data was heavily doctored and sugar coated – the actual unemployment rate is estimated by some to be around 40%.
As someone also in the electronics industry, I continue to be agog at Pilkington’s willful ignorance of how that industry even works. He’s really out over his skis here constantly.
Forgive me if this comes across as flippant, but an economy in which there are too many homes and not enough buyers probably sounds like paradise to the ears of many westerners under the age of 40.
“(an economy in which 30% is housing/construction and there are more flats than people is not sustainable).”
And neither are the banks sustainable which financed all that apartment building. The developers are being propped up for now, but something will have to be done with the banks too … it doesn’t look good.
I can understand the author being impressed with, say, the Chinese car industry, which is developing fast, but the property development/finance debacle, and the demographic trend, need to be considered too.
Interesting article – I would be very interested to identify the financial and cultural connections of this writer who seems to be a cheerleader for China in his various articles.
Every article of his implies the west is doomed while authoritarian regimes such as China and Russia are heading towards a financial Shangri La
Not just the West, but he himself. This article from January looks completely wrong:
https://staging.unherd.com/thepost/life-after-zero-covid-markets-bet-big-on-china/
It appears his crystal ball is broken (or he is a well-paid shill).
What we might see with China is Japan style stagnation, but without the benefit democratic system to prop the country up in order to keep it afloat. The Regime’s power is based of an implicit agreement between the people and the party, that it would maintain prosperity and the people would obey in return, but what happens when that cant be kept up. Also, what the power struggles within the party, can Xi keep them in line? What happens when he is know longer around? A lot of knowns, China has strong leaders(The Party), but not a strong state, which how the whole thing is set up. Putin’s Russia has shown how flawed such set up can be.
The 800-pound gorilla in the room is China’s coming age inversion and population bust, unstoppable absent a few hundred million immigrants. For a nation that is built on cheap labor, rapidly transitioning to a high value-added economy seems very unlikely
Even worse of a joke to project china can ever overtakr usa than chimese collapse