It was a week of 2021 stats, and the banner number was 8.1%, the GDP growth rate for the year. That was the overall best in a decade, but of course it was growth against 2020, the most extraordinary year in modern history. Our extremely rough calculation to make sense of this is that 2020 GDP growth was 2.2%, so 2020 and 2021 together add up to 10.3%. Divide that by two and you have average GDP growth of 5.15% growth for the two years. That makes sense, and is reflective of the overall trend the China system is facing, which is slowing economic growth. The GDP growth rate in 2019 was 5.9%, down to 5.15% for these last years, and then for this year? As reported last week, Goldman Sachs’ estimate for China’s GDP growth rate for this year is now 4.3%.
In years gone by, the common belief among analysts was that China needed to have a growth rate of 10% or 7% or 6% in order to remain socially and economically stable. China today is much stronger and more prosperous than it used to be, but its system still lacks the flexibility and massive diversification that allow the Western economies to manage and absorb minuscule growth rates. What is the number where things start to get tricky? Is it 4? Or 3? Who knows?
Another number released last week was the birthrate for 2021, which was 10.62 million (against 10.14 million deaths), the lowest number of births in modern Chinese history and once again a sharper drop than had been expected. Even providing favorable financial incentives to couples to have more kids is not going to make much difference at this point. It’s all at least a decade and probably two decades too late.
And yet another number—exports were up dramatically with a record trade surplus for the year of $676 billion. Looks good, but of course it also implies that the effort to shift China from being an export-driven economy to one based primarily on domestic demand is not so easy to achieve.
Finally, property. Property developer Aoyuan announced it would default on all its offshore bonds, and Evergrande announced it plans to shift much of its debt on its partners, to reduce the scale of the mothership’s indebtedness. Lucky them.
Have a great weekend and also a fantastic CNY break.