China’s Premier Li Qiang, the second most powerful individual after President Xi Jinping, is in Davos, Switzerland today where he announced China had hit its growth target one day before the official data is released. He also pronounced China open for business.
Li said in a keynote speech to business leaders at the World Economic Forum (WEF) in Davos that the Chinese economy had rebounded and moved upwards, and was estimated to have grown around 5.2% in 2023, above the official target of around 5%…
Li said China, with a rapidly urbanizing population of 1.4 billion people, would play an important role in boosting aggregate global demand. He also said China remained “firmly committed” to opening up its economy and would create “favourable conditions” to share its opportunities.
“Choosing investment in the Chinese market is not a risk, but an opportunity,” Li added.
That all sounds good, but if you’ve followed this story at all you already know that it doesn’t ring true. In fact, the reason Li is saying all of this is because foreign investment in China turned negative last November for the first time since 1998. One clear reason for that is the vague counter-espionage law which China put in place last year. Under that law, Chinese police raided various companies including several US companies:
Last month, U.S. due diligence firm Mintz Group said Chinese police had arrested five of its local employees and shut down its Beijing office. Chinese authorities later said the company was being investigated for “illegal” activities. A few days later, China’s top cybersecurity regulator said it was investigating leading U.S. computer chip maker Micron Technology and would review its products over “national security concerns.”
If you also add in the impact of China’s zero-Covid policy, it’s arguable that many of its current problems are self-inflicted. But the problems aren’t over. Yesterday at the same forum in Davos the head of the IMF said that in order to avoid further declines in growth China needed some structural reforms.
Speaking to CNBC at the World Economic Forum in Davos, Switzerland, Kristalina Georgieva said China was facing both short-term and long-term challenges.
In the short-term, she said China’s property sector still needed “fixing,” along with a high level of local government debt. Longer-term, Georgieva noted demographic changes and a “loss of confidence.”
“Ultimately, what China needs are structural reforms to continue to open up the economy, to balance the growth model more towards domestic consumption, meaning create more confidence in people, so [they] don’t save, they spend more,” Georgieva said.
“All of this would help China to deal with what we are predicting in the absence of reforms would be a fairly significant decline in growth rates going under 4%,” she added.
In other words, China’s growth this year probably won’t be replicated next year or the year after that. Reuters polled economists who were only slightly more upbeat than the IMF.
Analysts polled by Reuters expected growth to slow to 4.6% in 2024, and ease further to 4.5% in 2025, which may raise the heat on policymakers to unveil more stimulus to restore confidence and ride out the property slump.
Recent data suggested the economy was starting 2024 on shaky footing, with persistent deflationary pressures and a slight pick-up in exports unlikely to kindle a quick turnaround in lacklustre factory activity. December bank lending was also weak…
Investor disappointment with China’s performance last year pushed the yuan currency to a 16-year low at one point. The market capitalisation of stocks listed in Shanghai and Shenzhen fell by a cumulative $258 billion during 2023 and Hong Kong-listed shares lost $592 billion.
Newsweek reports the Chinese stock market seems to be in free fall.
After a rocky couple of years for the Chinese economy, the country’s stock market appears to be in free fall now, with authorities asking institutional investors not to sell stocks in an attempt to stabilize share prices as foreigners are pulling out…
The FTSE China 50 index—a real-time tradable index comprising 50 of the country’s largest and most liquid stocks—has plunged by 1.77 percent between Monday and Tuesday as part of a long-term large decline over the past six months. Compared to one year ago, the index is down by 29.24 percent.
China’s market regulators have tried to stabilize the market by imposing restrictions that stop some investors from being net sellers of equities on certain days. This strategy—with authorities offering what’s known as “window guidance” in an attempt to help the country’s stock market bounce back—was first introduced in October…
China’s central bank, the People’s Bank of China (PBOC), has been left with little room for maneuvering to strengthen the country’s economy as the Chinese yuan has weakened in recent months and the bank is likely to want to avoid a further depreciation of the currency.
So China can keep claiming it is open for business but so far foreign investors don’t seem to believe it. Neither do young people in China.
China’s slower-than-usual economic growth has put pressure on the country’s millennials and Generation Z. Reared by a generation of Chinese who made their wealth during nearly four uninterrupted decades of explosive economic growth, they face much lower expectations for economic dynamism and their own prospects going forward.
“China’s golden years, the two decades or so after our country’s reform and opening-up policies, are over. There’s nothing I can do about this. I can only accept it,” says 20-year-old Jeffrey An, who is starting a master’s degree…
…nearly 11.6 million university graduates joined the job market last year, and many are still looking for employment. “I don’t think the Chinese economy will be able to absorb the new graduates [from 2023],” says Houze Song, a fellow at the Chicago-based think tank the Paulson Institute. “Because of ongoing property crisis and the local government debt drag to growth … I believe that Chinese growth rate [in 2024] is more likely to be even lower than [in 2023], which means that the youth unemployment rate is more likely to continue to accumulate.”
Put this all together and what you have is a belligerent communist police state whose economy is sinking and whose population is shrinking. That’s not a recipe for success and foreign investors seem to know it.