As we head into the Chinese lunar new year dead zone, the economy is not in good shape. Consumer spending is down, the Shanghai Composite Index is back in 2,700s and the property market shows almost no signs of recovery in spite of a slew of new policies in cities across the country. But in marked contrast to the past, the Center made it clear yet again this week it is not going to splurge money into the system. A Ministry of Finance official told a press conference that fiscal spending will be maintained at a “necessary intensity.” That’s probably fiscally responsible but it also results in, or leads towards, a gradual slow down in the economy. Increasingly we are of the view that the probability is that that is the conscious goal. Lower property prices, a stock market minus fizz, reduced expectations, less export reliance… all this could lead to what Deng in the early 1980s used to refer to as the goal — 小康社会, a “moderately prosperous” society. This isn’t what the middle class signed up for or expected after the explosive growth of the 1990s and 2000s, but… 没办法 (it is what it is) is the mantra that is being encouraged.
A Hong Kong court ordered the liquidation of the monster property developer Evergrande, and the next question is the extent to which and in what timeframe Those in Command will allow mainland courts to allow this to happen. Whatever the answer, it’s an important milestone in the ongoing property saga which is so fundamental to the Chinese economy. This year will see other developments in this area.
And finally, China’s reported debt-to-GDP ratio climbed to a new record high in 2023—287.8%, 13.5 percentage points up on 2022, according to a report by the National Institution for Finance and Development (NIFD). For comparison, the debt-to-GDP ratio for the US is around 120%.
Have a great weekend.