The best economic news President Xi Jinping’s country has received in a while comes from the 8.7 % increase in Chinese imports in August.
The data, which came in significantly higher than the 6.5 % increase most economists anticipated, points to a crucial growth driver for the world’s largest trading country, which is now in desperate need.
According to Nomura Holdings ‘ experts,” the continued strong run of export may really delay near-term policy help.”
China appears to be a clear winner from persistently high global prices, which is boosting the country’s attractiveness in foreign markets. Wei Yao, an economist at Societe Generale, stated that “it truly offers some help to China’s growth.”
The question, of course, is whether the trade engine may continue firing to mitigate robust domestic headwinds. They include a deepening home issue that’s undermining company and home confidence, stagnant wages, negative pressures and great youth unemployment.
The bad news is that export gains do n’t appear to be sufficient to offset the long-term downward pressure on other parts of the economy. The good news: in the short work, rising exports could supply Xi’s staff greater latitude to employ much-needed structural changes.
Finding strategies to regulate real estate markets, repair the stability sheets of large property developers, and balance regional government finances is still a challenge for Xi’s team. Mainland property markets, noted Standard Chartered Bank CEO Bill Winters, have n’t yet found a floor.
The property market has been a slow grind over, according to Winters, who is aware that the property market is the underlying cause of many of the trust concerns.
He continued,” there are some signs from time to time that we’re seeing an increase in activity, but it does n’t feel like we’ve really found a bottom in terms of price.”
Ringing Zu Yu, the president of Shanghai CRIC Info Tech Co, makes another point about the sluggish pace among municipalities in terms of bolstering property markets around the country. ” Regional governments have made gradual headway”, Ding noted.
Imports, process, are proving to be far less strong than exports, a sign that island desire may require a policy-delivered jolt. Although a rate cut from the People’s Bank of China is possible, many academics believe a fiscal boost would have a bigger impact.
According to the Financial Times, investment banks economists believe that China has acquired a US$ 1.4 trillion signal program over the next two decades to rekindle economical growth and prevent deflation from ingraining its roots.
If that number is best, it would be more than double the economic “bazooka” Beijing deployed after the 2008 Lehman Brothers problems. ” The longer that depreciation sits, the bigger the process in terms of reflation”, Robin Xing, general China analyst at Morgan Stanley, told the Financial Times.
Some people think the China-cratering narrative has been a little too much, according to experts and economists.
As Louis Gave, scientist at Gavekal Dragonomics, observes, “it’s hard to find information in the , Chinese , information that home energy need has taken a noticeable change for the worse”. China’s crude oil imports were up in August, he noted.
” And talk that China’s fuel consumption is down because construction is cratering does n’t stand up well, either”, Gave said. ” Even at its height, the construction sector accounted for less than 4 % of , China’s diesel – or gasoline – consumption”.
However, the softness of Chinese exports suggests home demand remains sleepy. The 2 % increase from the previous year on average in August is insignificant in comparison. Lethargic goods, noted analyst Raymond Yeung at Australia &, New Zealand Banking Group, “mirrors its poor private demand”.
China’s” strong” trade surplus, Yeung added, may exacerbate” concerns” about mainland “overcapacity”, intensifying the blowback already fomenting among lawmakers in the US, Europe and elsewhere.
Pan Gongsheng, the government of the PBOC, faces a special issue as a result of all of this. Internationalizing the renminbi was a major concern for the Communist Party during the Xi era.
Beijing could become a bigger vote problem in the US, where both presidential candidates have taken harsh aim at China’s trade policies, if more drastic rate cuts are implemented. This will unnerve world markets and cause unrest in the country. Additionally, it may raise the risk of default for Chinese property developers who are unable to pay offshore loan.
Appearing at next year’s Bund Summit in Shanghai, Pan’s PBOC father, Yi Gang, urged Beijing to work with greater policy necessity to maintain customer charges. They should concentrate on battling the negative force, he said.
Yi emphasized that” the key words are: how to boost domestic desire, how to properly deal with the situation of the real estate business, as well as the local authorities debt problem, and how to control the confidence of society.”
The former PBOC head remarked that “at this point, proactive fiscal policy and accommodative monetary policy are important.”
One option is for Pan’s team to further lower reserve requirement ratios for banks further, said Zou Lan, director of the PBoC’s monetary policy department.
The challenge for Chinese policymakers is to manage the housing crisis and ensure that there is enough domestic demand to maintain the high level of economic growth, according to economist Jeffrey Schott of the Washington-based think tank.
According to Schott,” that is so crucial for the Chinese economy and for moving more and more people toward higher standards of living.”
China’s performance so far in 2024 is still marred by weak consumption. In July, for example, retail sales in Beijing dropped 3.8 % year on year. In Shanghai, sales fell 6.1 %.
According to economist Zhang Zhiwei of Pinpoint Asset Management,” the country continues to show divergent trends with weak domestic demand and strong export competitiveness, both reflecting the domestic deflationary pressure.” ” The question is how long exports can continue to grow given the deteriorating US economy and rising trade tensions,” the quote reads.
Strategist Yeap Jun Rong of IG International stated that” the lack of conviction around China’s economic recovery continues to leave investors shunning.”
Consider the$ 6.5 trillion in market value lost from Chinese and Hong Kong stocks since their peak in 2021, a loss comparable to the size of the entire Japanese market.
The issue is that the economy is in a worse place than I thought six months ago, according to Lazard Asset Management strategist Ron Temple, who quoted Bloomberg as saying: “it’s been an incredibly bad period for markets. The longer the government stays silent about initiating significant demand increases, the longer the consumer confidence damage will persist and the harder it will be to stop.
Count Carlos , Casanova, economist at Union Bancaire Privée, among those who worry China’s “export momentum in August remains unsustainable”. He stated that” we do not anticipate this trend to continue even though net exports will positively contribute to GDP in August.” Additionally, weak imports suggest that domestic demand is softening.
The export portion of the equation is a positive force for the time being. So are trends in foreign direct investment ( FDI) vis-à-vis top economies like Germany. FDI from Germany into China rose to a record in the first half of 2024, reaching 2.48 billion euros ($ 2.72 billion ) in the first three months of the year and 4.8 billion euros ($ 5.28 billion ) in the April-June period.
This dynamic contradicts German Chancellor Olaf Scholz’s warnings about “growing geopolitical risks” between China and the European Union. Ursula von der Leyen, the president of the EU, has been encouraging European companies to “de-risk” their positions in Xi’s economy.
” The trend is particularly notable for big German corporations, which have ramped up their investments in the Chinese market, which has long been their largest, most profitable single market”, Zheng Chunrong, director of the German Studies Centre at Tongji University, told the Chinese Communist Party-run Global Times.
According to Maximilian Butek, executive director of the German Chamber of Commerce in China, “our data shows that more than half of German companies plan to increase their investments in the country and the vast majority do n’t plan to leave.” This is particularly true for large corporations and the electronic or automotive industries.
Even so, noted UBP’s Casanova, some of the August export surge may reflect a “front-loading response” to the EU’s impending tariffs on Chinese electric vehicles. ” These provisional tariffs”, he said,” will last for a maximum of four months, during which a final decision on definitive duties must be made”.
If adopted, Casanova said,” these duties would be in effect for five years. Additionally, exports of aluminum ( 24.1 % vs. prior 20.5 % ), chemical fertilizers ( 31.6 % vs. prior 15.2 % ) and steel products ( 6.8 % vs. prior -2.4 % ) also saw significant increases”.
According to Casanova,” this trend is understandable in the context of upcoming EV tariffs and a rise in demand for chemical fertilizers in the wake of sanctions against Russia.” Exports to the United States slowed to 4.8 %” versus 7.6 % in the prior month, while demand from ASEAN countries also showed a slight recovery.
The problem, he concluded, is that” a slowdown in major economies, particularly the US and Europe, may diminish demand for Chinese exports in the coming months. Additionally, rising geopolitical tensions in the weeks leading up to the US election in November may lead to uncertainty that could affect trade agreements and market access.
Thanks to geopolitical currents– including the November 5 US election–” China’s latest export push is backfiring”, claims economist Jeemin Bang at Moody’s Analytics. ” Its policy-led ramp-up in manufacturing has sparked protectionism abroad, potentially leaving China with few viable export markets”.
The end result is that while export growth is advantageous right now, it may not be a reliable engine until 2025. That will require more courageous actions to address China’s fundamental problems, such as a persistent property crisis and domestic demand-boosting measures that wo n’t go away.
Follow William Pesek on X at @WilliamPesek