China Economy News Bulletin

Compiled by C.V. Varun Sai

What China’s economic problems mean for the world
BBC, September 29, 2023
“Mathematically, yes, China accounts for around 40% of global growth,” says George Magnus, an economist at the University of Oxford’s China Centre. Nevertheless, China spending less on goods and services – or on housebuilding – means less demand for raw materials and commodities. In August, the country imported nearly 9% less compared to the same time last year – when it was still under zero-Covid restrictions. “Big exporters such as Australia, Brazil and several countries in Africa will be hit hardest by this,” says Roland Rajah, director of the Indo-Pacific Development Centre at the Lowy Institute in Sydney.
https://www.bbc.com/news/business-66840367

World Bank downgrades developing East Asia growth forecast, weighed by a slowing China
CNBC, October 01, 2023
The World Bank said it now expects developing economies in East Asia and the Pacific to grow 5% in 2023, according to its October report published Monday in Asia. That’s slightly less than the 5.1% it had forecast in April. For 2024, the Washington-based multilateral bank now expects 4.5% growth for the region, down from its forecast of 4.8% in April. The World Bank left its 2023 economic growth forecast for China unchanged at 5.1%, but lowered its 2024 estimate to 4.4% from 4.8% previously. The organization cited “longer-term structural factors,” elevated debt levels in the world’s second-largest economy and weakness in its property sector as reasons for its downgrade. “While domestic factors are likely to be the dominant influence on growth in China, external factors will have a stronger influence on growth in much of the rest of the region,” the World Bank said.

World Bank cuts growth estimates for East Asia as China falters
CNBC, October 02, 2023
“What happens in China matters for the whole region,” the report read. “A 1 percentage point reduction in its growth is associated with a reduction in regional growth by 0.3 percentage points.” Excluding China, East Asia and the Pacific should see slightly faster growth in 2024 as the global economy improves and revives foreign demand for the region’s manufactured goods and commodities, the World Bank said. Geopolitical tensions, possible natural disasters including extreme weather events are downside risks to the outlook, it said.

Fears China ‘closing in on itself’ amid crackdowns, rising nationalism
Al Jazeera, October 03, 2023
Chinese nationalistic sentiment has not only been directed at consumer electronics or the US. The Chinese authorities have also made it increasingly difficult for foreign entities to gain access to data while outsiders’ access to some databases has been completely blocked. Other types of data have been censored or will simply no longer be released. Chinese President Xi Jinping has called for a “solid” security barrier around China’s internet under the supervision of the Chinese Communist Party (CCP). Rising barriers have also affected the cultural sphere. In the first 10 months of 2022, China allowed just 38 foreign movies to be screened in domestic cinemas, compared with 73 in 2021 and 136 in 2019. The CCP wants to create an economic environment within which a company like Huawei can easily export its products to the world while Chinese consumers will choose Huawei smartphones instead of iPhones, according to St Thomas’s Yeh.

Citi raises China GDP forecast, saying economy has bottomed out
Money Control, October 05, 2023
Citigroup Inc. raised its growth forecast for China to 5% this year, as promising data helps build consensus around the nation’s ability to achieve its official government target. “The cyclical bottom is here, with all eyes on whether organic demand will pick up amid gathering policy momentum,” wrote economists led by Yu Xiangrong. The bank’s previous forecast was 4.7%, making it among the more bearish investment banks on China. Sales at China’s major retailers and restaurants rose 8.3% in the first three days of the holidays versus the same period in 2022 when several regions faced coronavirus restrictions, China Central Television reported, citing data from Ministry of Commerce. There will be about 900 million domestic tourist trips made during this year’s holidays, China’s Ministry of Culture and Tourism has predicted. That would translate to an increase of about 5% in daily average domestic tourism revenues compared to the same period in 2019, according to economists at HSBC Holdings Plc.

China’s economy will be hobbled for years by the real estate crisis
CNN, October 06, 2023
Fears have mounted over the fate of Evergrande, which has more than $300 billion in unpaid debts and hundreds of thousands unfinished apartments across the country. But overall, the property sector has contracted severely as it adjusts to a collapse in demand. In 2020, 2021 and 2022, new construction starts measured by floor area dropped by 2%, 11%, and 39% respectively compared with the year prior, according to official data With the property sector stalling, Beijing is trying to find alternative engines of growth. Last month, President Xi Jinping stressed the need to promote “a new type of industrialization,” in which sectors like green technology could take the place of property. By June, households’ bank deposits totaled a record $132 trillion yuan ($18 trillion), surpassing China’s entire GDP for last year, according to data from the People’s Bank of China. Household savings surged by 17.84 trillion yuan ($2.6 trillion) in 2022, up 80% from 2021. That’s more than one third of their total income. Before the pandemic, people saved about a fifth of their income.

Has the Chinese economy hit the wall?
East Asia Forum, October 08, 2023
As always, there are cyclical and structural factors at play in the unfolding economic outlook. Among the cyclical factors are scars from the COVID-19 pandemic — deteriorating balance sheets, an ailing property sector and a limited macroeconomic policy response. Meanwhile, structural pressures are weighing on confidence as regulatory, security and political stability concerns continue to mount. After three years of pandemic pressure, the balance sheets of households, enterprises and local governments are stretched. Unlike the United States, China’s government did not hand out large subsidies to households and enterprises during the COVID-19 pandemic. Without that demand-side stimulus, Chinese consumption has been sluggish. The government has moved to offset some of these negative policy impacts. As a part of its broader policy mix, it has announced new policies aimed to shore up confidence and support private enterprise, foreign-invested firms and consumption. The government’s 31-point plan released in July 2023 highlights the importance of the private sector and fair competition, eliminating barriers to entry, protecting property rights and drawing private enterprises into national projects.

South Korean Chip Makers Get U.S. Waivers From China Export Rules
New York Times, October 09, 2023
To curb China’s access to advanced chips that could power its military, Washington imposed restrictions on chip exports last October. It granted Samsung and SK Hynix one-year licenses that allowed them to continue to operate in China, but the looming expiration of those licenses set off concern in South Korea’s semiconductor industry. “This kind of indefinite exemption is the most stable condition for companies, and only in this way can they consider restarting their investments in China,” said Eric Chen, a research analyst at Digitimes Research, a market tracking company. “But in reality, we cannot avoid the political risks and the uncertainties of geopolitics.” It was not clear whether a similar waiver had been extended for Taiwan Semiconductor Manufacturing Company, the world’s largest contract chip maker. TSMC, as the company is known, produces some of its less advanced logic chips in two plants in China. TSMC had also been granted a yearlong exemption from the export controls last October. The company was not immediately available for comment.

The Rare Indicator That’s Still Optimistic About China’s Property Market
Wall Street, October 09, 2023
Yet iron-ore prices have risen by roughly 20% since late May even as bad news has piled up in China’s housing market, where major developers have missed interest repayments and new-home sales have slumped. The price paid for physical cargoes of iron ore was $116.35 a ton on Monday, after falling below $100 a ton earlier this year. The resilience of iron-ore prices has surprised some traders and suggests a temporary reordering of trade flows that could fan concerns about Chinese market power. China produces more than half of the world’s crude steel, and its exports have at times stoked political tensions, including with the U.S., which levied a 25% tariff on steel imports from China in 2018 on national-security grounds. China’s crude steel output increased by 2.6% on year in the first eight months of 2023, according to the World Steel Association, an industry group.

China GDP: economy predicted to hit 2023 growth target, but action still needed to ensure long-term stability
South China Morning Post, October 09, 2023
The Institute of Economics at the Chinese Academy of Social Sciences (CASS) also predicted the world’s second-largest economy grew by 4.6 per cent in the third quarter from a year earlier, down from 6.3 per cent growth in the second three months of the year.

HSBC buys Citigroup’s US$3.6 billion China consumer wealth business
South China Morning Post, October 09, 2023
The portfolio comprises US$3.6 billion in assets and deposits, with customers in 11 major cities, according to a statement from the London-headquartered bank on Monday. The deal excludes Citi’s credit cards, mortgage and other loan portfolios in mainland China.

China GDP: as IMF lowers economic forecasts, is there still a window of opportunity to surpass the US?
South China Morning Post, October 10, 2023
And the gap could expand again this year given the depreciation of the yuan and the latest economic forecasts by the International Monetary Fund, which cut China’s expected expansion for 2023 from the 5.2 per cent predicted in July to 5 per cent on Tuesday.

Despite ‘de-risking’ talk, Germany has not turned away from China
South China Morning Post, October 10, 2023
Yet, in reality, Berlin has been taking a two-pronged approach to China. On the one hand, there is criticism of China, particularly from the Green Party and Baerbock, partly on ideological grounds and partly to appease Washington and European partners.

China property crisis: troubled Kaisa tells court creditors will get less than 5% of their money back if it is liquidated
South China Morning Post, October 10, 2023
Broad Peak Investment, a Singapore hedge fund, filed a winding-up petition against Kaisa in July in the Hong Kong High Court in relation to non-payment of onshore bonds worth 170 million yuan (US$23.28 million).

Morningstar among analysts saying Chinese banks’ earnings under pressure in fourth quarter due to property crisis, low consumer confidence
South China Morning Post, October 10, 2023
China’s total household loans increased by 392 billion yuan (US$54.7 billion) in August, driven by an increase of 232 billion yuan in short-term loans and 160 billion yuan in medium to long-term loans, respectively. Excluding single-month fluctuations, household loan growth weakened to 6.8 per cent year on year, Morningstar analysts said in a report this week.

China’s real estate, debt crises prompt IMF warning of widening economic damage
South China Morning Post, October 10, 2023
Developer debt and the failure of local government financing vehicles (LGFVs) to pay back loans could “unravel” optimism about a “soft landing of the global economy” and an easing of inflation, the IMF said in its semi-annual “Global Financial Stability Report”.

China must reform now and put more money in the people’s hands, economist Li Shi urges
South China Morning Post, October 10, 2023
Consumer confidence and consumption were bogged down by weakened per capita income growth from 2020-22, owing largely to the pandemic and China’s zero-Covid containment measures. Last year’s growth was 2.9 per cent, compared with a moving average of almost 7 per cent between 2014 and 2019.

China struggling to wean itself off US dollar assets despite financial de-risking calls
South China Morning Post, October 10, 2023
“Instead of accumulating dollars through our export machine and investing them back via low-return Treasuries, emphasis must be shifted,” he said, urging the safety of overseas assets to be elevated as an imperative informing all investment decision making. China’s holdings of US Treasuries have fallen by 25 per cent, or US$280 billion, from early 2021 to a 14-year-low of US$821.8 billion in July, with the decline often attributed to its divesting and diversification drive. As of the end of September, among official reserve assets, gold had reached 70.46 million ounces, marking an increase of 840,000 ounces from the previous month.

What’s the state of China’s digital yuan in 2023?
South China Morning Post, October 10, 2023
Its implementation has gone into overdrive in 2023. Former People’s Bank of China (PBOC) governor Yi Gang said in July that total transactions had reached 950 million with a cumulative value of 1.8 trillion yuan (US$249.9 billion) by the end of June, up from 100 billion yuan (US$13.9 billion) the previous August.

EU plans anti-subsidy probes to secure steel deal with US
Reuters, October 10, 2023
China’s shipments have steadily fallen since 2015, when they made up 25% of EU steel imports in volume terms, to below 10% since 2018, according to EU steelmakers federation Eurofer. Eurofer Director General Axel Eggert said traditional trade measures would not solve the problem, adding that 150 million tonnes of new global capacity was planned for the next three years. The extra annual emissions would by 2026 be more than the CO2 emissions of the entire EU steel sector, he said..

China outlines vision for ‘green aviation’ with NEV industry, C919 as models
South China Morning Post, October 11, 2023
The 2023-2035 development guidelines on green aviation, released on Tuesday, are a sign of intent by Beijing to make headway in the global arena after the country’s success in the new energy vehicle (NEV) market and the summer debut of the C919, the country’s home-grown commercial jet.

Beijing tells China’s poor that help is coming, as leaders order wider social security net amid rising economic toll
South China Morning Post, October 11, 2023
“With China increasing its spending on other commitments like defence, such a low per capita income means Chinese citizens are really paying for these commitments,” Zweig said, adding that income growth and fairer distribution should be priorities.

China Evergrande: is founder Hui Ka-yan’s arrest related to its Chapter 15 bankruptcy protection filing?
South China Morning Post, October 11, 2023
China Evergrande Group, once the nation’s biggest property developer, may be living out its final days as a solvent entity, with its survival hanging precariously by a thread. A winding-up petition in Hong Kong later this month could deliver the knockout blow.

Why a property crash could be good for China
South China Morning Post, October 11, 2023
Several domestic headwinds pose challenges to the Chinese economy. These include low consumption and a growing reliance on unproductive investments fuelled by a perilously high savings rate and an increasing debt burden. The challenges stem from what former premier Wen Jiabao labelled in 2007 as “unbalanced” growth.

China’s local governments step up plans to issue refinancing bonds to tackle LGFV debt
South China Morning Post, October 11, 2023
China’s local governments are gearing up to issue refinancing bonds to service outstanding liabilities associated with US$9 trillion of “hidden” debt amid efforts by Beijing to defuse risks in its slowing economy.

China’s state-owned firms advised to focus on tech bottlenecks, security
South China Morning Post, October 11, 2023
Beijing began a new round of SOE reforms earlier this year, shifting from efficiency enhancement to technological innovations and breakthroughs, especially in sectors struggling with export restrictions imposed by the United States.

Tech war: US waiver of China export restrictions on advanced semiconductor equipment to South Korea’s Samsung and Hynix to make life harder for rival mainland chip makers
South China Morning Post, October 11, 2023
The waiver is also expected to benefit suppliers of advanced chip-making equipment and materials, while putting rival Chinese memory chip makers like US-blacklisted YMTC at a disadvantage, according to analyst Wang Lifu of semiconductor consultancy ICWise. “Had the US not granted a waiver [to the two South Korean firms], YMTC would have benefited [from demand in the local market],” Wang said.

China population: annual births expected to hover around 10 million as nation ages
South China Morning Post, October 11, 2023
The annual number of newborns in China will stabilise at around 10 million while the population’s ageing accelerates, a senior researcher and government adviser has said. With more than 70 million estimated to be 80 years or older by 2035, demand for policy support in public services is expected to grow concurrently.

MC Explains: How China’s hero sector has turned antagonist for its economy
Money Control, October 11, 2023
Meanwhile, Evergrande, the poster boy of China’s real estate boom for the last two decades, filed for bankruptcy protection in the United States in August. Founder and Chairman Xu Jiayin, known as Hui Ka Yan in Cantonese, was detained in China last week on accusations of committing crimes connected to the abrupt collapse of his company. Evergrande is the most indebted developer in the world. Its shares have dropped 99 percent since July 2020, losing around $47 billion. The IMF has warned that China’s financial stability is in danger as the country’s real estate market continues to spiral out of control, leading the multilateral agency to lower its growth forecast for the country by 20 basis points to 5 percent for 2023 and by 30 basis points to 4.2 percent for 2024. It has urged the Chinese government to contain the crisis and revive people’s confidence in the real estate market. But overall, it has called for the world’s second-largest economy to “pivot away from growth that relies on credit for the real estate sector”.

EU to investigate Chinese steel and aluminium sectors, with tariffs looming, in deal with US
South China Morning Post, October 12, 2023
The inquiry would be coming as trade tensions soar between the EU and China. It is anticipated that the new tariffs, should they come to pass, would be on top of EU tariffs already imposed on some Chinese steel products.

China to further ease foreign ownership restrictions: ministry
China Daily, October 12, 2023
The country has revised its negative list for foreign investment for five consecutive years, with barriers to foreign ownership reduced in sectors including seed, automobile, vessel and aircraft manufacturing, securities, banking, and insurance, the spokesperson said. In 2022, China’s actual use of foreign direct investment (FDI) reached $189.1 billion, marking an 8 percent year-on-year increase on a comparable basis. The country’s share of global FDI rose from 8.2 percent in 2012 to 14.6 percent in 2022.

Train service from Yiwu to Madrid promotes economic cooperation, cultural exchanges
People’s Daily, October 12, 2023
The train service from the Chinese small commodity hub of Yiwu to the European commodity center of Madrid was officially launched in November 2014, spanning eight countries in Eurasia with a total length of more than 13,000 kilometers. The train service from Yiwu to Madrid has become a carrier of economic and trade cooperation and cultural exchanges between countries along the railway and has built a new bridge for opening and cooperation between countries and peoples along the line.

China consumer prices were unexpectedly flat as economic recovery remains fragile
CNBC, October 12, 2023
China’s producer price index fell 2.5% from a year earlier, weaker than expectations for a 2.4% decline, after a 3% drop in August. The drop in factory prices, though, was the smallest in seven months. Month-on-month, consumer prices edged up 0.2% in September, with food prices increasing 0.3% — representing a decrease of 0.2 percentage points from August’s print compared to the previous month.

Analysis: Diesel release valve: China poised to save West from shortages again
Channel News Asia, October 13, 2023
Chinese fuel exports are currently around 1.1 million barrels per day (bpd), down from last year’s peak at 1.8 million bpd in December. Chinese refiners capitalized on record fuel profit margins last year as the market reeled after the start of the war in Ukraine. China’s fuel exports are set to rise by about 519,000 bpd in October, with diesel exports up about 160,000 bpd, as Chinese refiners cash in on lucrative margins, industry sources and analysts said.

China’s Economy Remains Shaky After Challenging Summer
The Wall Street Journal, October 13, 2023
The International Monetary Fund this week lowered its forecast for Chinese growth this year and next to 5% and 4.2%, respectively, from earlier predictions in July of 5.2% and 4.4% growth. The cut in expectations for China also prompted the IMF to lower its global growth forecast to 2.9% for 2024. One imminent risk stems from the embattled real-estate sector. Country Garden, one of China’s largest property developers, failed to repay a $60 million loan and said this week that it is likely to default on nearly $190 billion in debt.

Borrell says EU to manage ties with China in ‘constructive’ manner
Reuters, October 13, 2023
The 27-member bloc’s record $426.08 billion trade deficit with the world’s second-largest economy has become a major sticking point in the relationship, along with China’s close ties with Russia after its invasion of Ukraine.

Asia Continues to Fuel Global Growth, but Economic Momentum is Slowing
IMF, October 13, 2023
Strong consumer spending has supported growth in Asia’s three largest economies this year, but there are already signs that the region’s recovery may be running out of steam. We expect growth in Asia and the Pacific to accelerate from 3.9 percent in 2022 to 4.6 percent this year, unchanged from the projection from last April. This is largely explained by the post-reopening recovery in China and stronger-than-expected growth in the first half of the year in Japan and India. With pandemic restrictions lifted, demand in these economies was bolstered by consumers running down savings accumulated during the pandemic, leading to notable strength in the services sector.

China’s Teetering Local Debt Mountain, in Six Charts
Wall Street Journal, October 13, 2023
After a decade of kicking the can down the road, China’s local government debt problem has become impossible to ignore. How adroitly Beijing acts to address it could make or break China’s financial system over the next several years—and the economy’s trajectory as a whole. China’s city governments have long been burdened with heavy debt—a consequence, in part, of a fiscal system that allocates most tax revenue to Beijing but leaves the bulk of expenditures, outside of defense, to cities and provinces.

Borrell says EU to manage ties with China in ‘constructive’ manner
Reuters, October 13, 2023
Wang described the talks as “comprehensive, candid and friendly” and said China took Europe’s concerns on trade seriously, but urged the EU to avoid “protectionist” approaches and be cautious in using trade remedies. The 27-member EU’s record $426.08 billion trade deficit with the world’s second-largest economy has become a major sticking point in the relationship, along with Beijing’s close ties with Moscow since the 2022 Russian invasion of Ukraine.

China’s chip imports decline 15% in first nine months of 2023 as the country braces for a new round of US tech export controls
South China Morning Post, October 13, 2023
The number of chips that China imported from January to September reached 355.9 billion units, down from 416.7 billion in the same period in 2022. The total value of semiconductors imported by China in the past three quarters fell 19.8 per cent year on year to US$252.9 billion

China inflation: 4 takeaways from September’s data as consumer prices remained flat
South China Morning Post, October 14, 2023
China’s consumer price index (CPI) remained flat from a year earlier in September, compared to a 0.1 per cent increase in August. Chinese data provider Wind had predicted a CPI increase of 0.2 per cent in September. Within CPI, overall food prices dropped by 3.2 per cent year on year last month, while pork prices – which have a high weighting in China’s CPI basket – fell by 22 per cent, compared to a fall of 17.9 per cent in August. China’s producer price index (PPI) – which reflects the prices that factories charge wholesalers for products – fell by 2.5 per cent in September, narrowing from a fall of 3 per cent in August. The indicator has fallen for 12 months in a row.