The short-term prospects of the Chinese economy look increasingly strong, and one prediction we saw today has economic growth for next year back above the magic 8 again—the first time in around a decade. Exports are doing well too, as China benefits from being the first major economy to emerge from the COVID cloud, but trouble is lurking in there. Debt is the first and most obvious question. The total debt of local governments, it was reported this week, is now estimated at more than $4 trillion, which is no small sum. Of course, the system is such that it is controllable in a way that would be unthinkable in any other major economy, but that can’t mean—can it?—that it is not a major problem. It’s the basic difference between the West and China—both are spending magic money at the moment to offset the pandemic fallout, but in the West, there is massive dispersal of the consequences. The debt, while in China, is all concentrated on one group, one entity. But in another good sign—consumer prices are deflating, largely due to pork prices coming down.
The shift of Chinese companies back to friendlier parts will be accelerated by actions this week taken by both S&P and FTYSE to remove Chinese firms from indices. But in the wake of the Ant Financial IPO being dramatically torpedoed, the Chinese authorities signaled tougher scrutiny of new listings. It’s got the makings of a vice-like situation.
A new angle on the Australian saga was provided by news of iron ore sales going gangbusters in spite of tensions in other aspects of the relationship as China stocks up for more massive infrastructure construction to help offset economic problems.
And last, vaccines, the new big topic. Sinovac, the Chinese contender, announced it will have 600 million vaccine shots ready for use by the end of this year, far ahead of the supplies from Western players like Pfizer and Moderna. The efficacy rate of the Chinese vaccine was reported by the UAE to be 86%. The Trump administration, meanwhile, said that Americans would get the jabs first and damn the rest of the world, creating yet another opening for Beijing to appear savior-like. Sigh.
Have a great weekend.