More and more signs point towards the Chinese economy having severe problems. Earlier this week data for Chinese consumer confidence came out and it was disappointing. SCMP writes;
The consumer confidence index stood at 99.4 in the October-December period last year, compared with 99.3 in the previous quarter – but well below the 105.1 of the last quarter of 2017. Readings above 100 indicate that consumers, on balance, are optimistic, while readings below 100 show that they are not, according to the survey.
Confidence levels in real-estate, the most popular investment category among Chinese consumers was bad as well. It declined to 82.5 from 87.7 compared to the same quarter in 2017. Furthermore, data showing a rapid decline in car sales in China strengthen the thesis of the economy cooling down. China Daily reports;
Retail sales of passenger cars in China fell 5.8 percent in 2018 to 22.35 million, the first annual fall since 1990, but there is much room for further growth in the long term, the China Passenger Car Association said on Wednesday.
“The situation turned out grimmer than we thought,” said Cui Dongshu, secretary-general of the association.
There are already concerns that China will have difficulties meeting its (“artificial”) 6.0-6.5% growth target for 2019. How bad are things? It is reported that the actual growth rate for 2018 was only 1.67%. Xiang, the former chief economist of the Agricultural Bank of China, one of the big four state lenders noted in a speech;
How bad are things? The number that China’s National Bureau of Statistics (NBS) gives is 6.5 percent, but just yesterday, a research group of an important institution released an internal report. Can you take a guess on the GDP growth rate that they came up with using the NBS data?
They used two measurements. Going by the first estimate, China’s GDP growth this year was about 1.67 percent. And according to the other calculation, the growth rate was negative.
Beijing is highly concerned about what is released about the economy. Censoring anything negative. Alex Capri of National University of Singapore’s Business School, said in interview earlier this month;
“I do believe, of course, the economy in China is decelerating. I do believe the numbers are worse than reported, of course, in that type of political environment where there’s strong censorship, where media is essentially prevented from reporting,”
Of course Beijing is throwing everything at the slowing economy. Measures such as stimulating consumer spending and boosting SME companies. In addition, they are rolling out another round of tax-cuts and more infrastructure spending.
All of these efforts pales in comparison if they are able to agree on a trade deal with the United States. The Chinese are aware of this. In a speech Chinese Vice President Wang tried to point out the importance of cooperation;
“As Chinese-US relations stand at a new starting line, [we] must stay committed to our original aspiration and focus on coordination, cooperation and stability,”
“We must adapt to the new reality, keep looking for and expanding our common interests, deepening and promoting practical cooperation
This falls on the back of the massive outstanding debt issues for China. Bloomberg writes Chinese foreign debt have being increasing at an alarming rate. China has officially over $1.9 trillion in debt. Daiwa Capital Markets believed the true figure is closer to $3-3.5trillion. Over 60% of this debt is short-term based and needs to be rolled-over this year. Total external debt has increased 14% in the past year and 35% since the beginning of 2017.
Chinese firms with massive dollar debt, will have to either draw from the central banks foreign reserves or buy dollars on the international market. This will become even more expensive as Federal Reserve raises rates and reduces its balance sheet. Further pushing up the value of the dollar. If there is no trade deal between U.S. and China both countries will suffer. However,the negative effects will be more severe for China as the economy comes to a halt, leverage is high and the country has large exposure to dollar denominated debt.