China’s Economic Stories (Part III)
Today’s Part III of III concludes this look deeper into and consideration of other sides of China’s economic story beyond what is often published in American media. Part I dealt with domestic migration and population. Part II reviewed domestic investing. Part III looks at prices and marketing the Chinese economy.
(image by m3ron)
PRICES. Another risk facing the Chinese economy is the potential of tipping from an inflationary to a deflationary pricing environment.
The concern is real. A former governor of Japan’s Central Bank has warned that China must take heed to avoid falling into the deflationary trap that beset Japan several decades ago.1 Speaking at a forum in Shanghai on September 6th, China’s former central bank governor Yi Gang said that “policymakers ‘should focus on fighting the deflationary pressure.’”2
Energy prices and core inflation fell in August, though rising prices for vegetables and pork helped pushed China’s CPI up half a percent.3 Property investment and vehicle sales continue to drop monthly in substantial and worrying percentages. Retail sales of consumer goods rose in August, but less than the month before and below forecasts.4 Industrial profits have also been anemic.
Milk and beef prices are in a spiraling decline. “Falling prices and flagging demand had already prompted some farmers to dump milk and slaughter their cows since January last year, the state-backed Global Times newspaper reported….Demand for milk has fallen in China because of a slowing birth rate and a broader pullback in consumer spending, which is a hallmark of China’s struggle to recover its economy.”5 To address this problem, multiple governmental departments have announced a variety of programs to support farmers, increase consumer interest, and stabilize the dairy industry.
(photo by Sam Ellis at CSIS)
The central government now shares the angst and has announced several monetary, fiscal, and expansionary policies to try to arrest declines, spur demand, and better ground the economy. “In recent months, to boost consumption and investment, Beijing ramped up two renewal initiatives – large-scale equipment upgrades and a trade-in programme for consumer goods – and supported the efforts with an extra cash injection of 300 billion yuan via ultra-long-term special treasury bonds.”6
For its part, in response to slumping sales in the retail, restaurant, and other sectors, Shanghai has announced a more than seventy-million USD give away of e-consumption vouchers to residents of the city. People will be able to use the coupons to save money dining in restaurants, staying in hotels, watching movies, and attending sporting events. In addition, the catering industry will receive a substantial boost in subsidies.7
Many of these actions are too new to have yet moved the demand dial appreciably or at all. The wide-ranging, central government stimulus announced last week has indeed turbocharged the stock market, and the coming weeks will tell if the run-up has legs. The actions taken may ultimately turn out to be insufficient by themselves and need to be enhanced if the government is willing to take such further steps. China today has relapsed to a nervous savings culture, not the carefree consumer culture of the first two decades of the new century.
(image by www.examlife.info)
MARKETING THE ECONOMY. Politics, ideology, and economy all fuse together in China. The Chinese Communist Party has assigned itself the role of puppet master for both the State and private marketplaces. To lump cliches, this role requires an elaborate tap dance on the head of a pin teetering at the edge of a yawning abyss during an earthquake. The opaque nature of governance in China makes the dance even more delicate and difficult to decipher.
Numbers mean a lot to China’s government. For example, achieving the yearly target of (around) 5% growth is a crucial symbol politically and for national and Party pride, if not also economically. In recent years, the targets have been met (acknowledging that announced numbers are malleable). As 2024 ticks down, even leadership realizes that the annual goal likely cannot and will not be met and that the usual spin thus much change.
Earlier this summer, the communique after the Party’s Third Plenum repeated that the country “‘must remain firmly committed’ to accomplishing this year’s goals.” But earlier this month, Xi Jinping told attendees at a symposium that “‘We should strive to fulfil the economic and social development goals and tasks for the whole year.’”8 The press and other China commentators are parsing the “subtle change” of “firmly committed” to “strive” in how this year will be packaged and remembered. China is still growing, but not at the rate it may need to to achieve its global and security aspirations.
It is not just in terms of macro economic performance where the Chinese government makes its shaping presence known. In 2023, the government “suspended releasing youth unemployment figures when the number reached record highs. It started distributing the information again this year, with a new methodology that lowered the figures.”9 Last month, the government began restricting “daily data showing net investment flows from foreign funds into stocks in mainland China” and announced that “information on foreign stock holdings will instead be available quarterly.”10 The takeaway is that data needs to support the message.
Tiananmen Square, Beijing, Sept. 25, 2024 (photo by Xinhua)
Tomorrow (October 1st) is the 75th anniversary of the founding of the People’s Republic of China. It is a big deal date with a lot of pomp and circumstance. The government’s outsized interventions in the economy over the past week, including an atypical September Communist Party Politburo meeting which set much in motion, almost certainly had the optics of this in mind.
One of these economic measures injected $114 billion USD into the stock market “to support [its] stable development.” Tian Xuan, Associate Dean and Chair Professor of Finance at the Tsinghua People’s Bank of China School of Finance, spoke a couple of days ago at a Chief Economists Forum in Beijing. He noted that, “This [stock market intervention] marks the first time in China's history that the central bank has directly provided liquidity support to the stock market, transitioning from previous restrictions on capital flowing into the market to requiring that this capital now exclusively be used for purchasing stocks.” (emphasis in original).11
Chinese leader Xi Jinping often speaks of telling China’s story well. This starts from the top and diffuses throughout government. The messages and actions are aimed at nurturing and molding China’s economy in part to market China’s success and China’s glory.
Notes
11 Published by Zichen Wang on his Pekingnology.com substack