China: Xi’s World
Sustainable economic strength or dead-cat bounce? Three reasons to be skeptical of China’s long term economic growth.
4.19.2024
China’s 1Q24 GDP growth clocked in at 5.3%, far ahead of expectations for 4.5%.
It is not party time and things are not excellent.
Real economic strength or a dead-cat bounce? I’m in the dead-cat bounce camp for three key reasons.
1. Increased Authoritarianism
This is a one-way street. Xi continues to consolidate power. It was also announced that China eliminated the annual press conference with its premier. The message is clear: there is no room for any opinion other than Xi Jinping’s. Foreign CEOs are taking note and investment into China is drying up.
2. Real Estate & Population Problems
Real estate is an enormous percentage of Chinese consumer’s balance sheets. China’s real estate bubble continues to weigh on consumer sentiment and the overall economy. Poor demographic trends compound this problem. Major economic imbalances and poor demographics are not fixed by interest rate cuts or fiscal stimulus!
3. Export Strength Not Sustainable
Strong net-exports drove China’s recent GDP ‘beat’. But this flood of exports is just a short-term boost. Dubbed China Shock 2.0 this most recent flood of exports is a result of China’s overcapacity problem. China invested heavily in factories to make stuff for its domestic consumers. With depressed domestic consumers not buying enough China is simply exporting its surpluses.
But pumping underpriced goods into other economies isn’t a good way to make friends. The US and the EU are threatening to raise trade barriers.
Emerging economies including Brazil, India & Mexico are also joining the chorus.
Can China’s economy keep this up? I doubt it.
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