I really don’t think people quite understand just how much trouble China is in right now. That’s no mystery because in the Western media the Chinese economy is almost always described as somewhere between awesome and magnificent (only slight hyperbole). Their government, on the other hand, is not fooled.
General Secretary Xi Jinping opened the Communist Party’s 19th Congress with an amazing speech. It wasn’t amazing in the respect of soaring rhetoric announcing some actual, concrete commitment to freedom and free markets; it was instead the opening bell for, I think, a very different world outlook.
I write for my column tomorrow that it was in some cursory way reminiscent of the Trump candidacy.
On the surface, it almost seemed as if Xi Jinping was channeling Donald Trump. Opening China’s 19th Party Congress this week, the Communist General Secretary of that Congress talked a lot about “rejuvenation.” The word recalled the 2016 US Presidential campaign and the Republican’s promise to “make America great again.”
But what Xi was actually saying was really nothing like “make China great again”, merely an emotional plea in the same economic manner as the American’s campaign. The word rejuvenation that he used repeatedly (in its translation) actually meant in the context of Xi’s speech something very different, more like “make China OK with not great.”
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Xi proclaimed a “new era” where the quality of growth would be the priority over quantity or speed. It sounds good until you think about it, as anyone with common sense knows that quality comes from speed. The rejuvenation part was nothing more than making it seem as this was the plan all along; the official version of “oh, hey, we meant to rebalance this whole time.” Only there isn’t any hint of rebalancing.
Just hours after the General Secretary’s speech, China’s National Bureau of Statistics (NBS) published all the necessary estimates to hammer the final nail in the “old era’s” coffin. The Chinese government has tried everything since 2009, to no avail. Apart from what looked like a recovery in 2010 and 2011, it was short-circuited with the rest of the global economy in 2012, unable to shake “whatever” seems to be holding everything back.
Industrial production in September 2017 was 6.6% above September 2016, the same low level as has been estimated since early 2015. Apart from a couple sparse months closer to 8%, that’s it. The 8% level used to be something like recession for China, now it is, apparently, that country’s ceiling; Chinese industry hasn’t once grown by more than 8% since the start of the “rising dollar”, a span of more than three years.
As much as officials and economists talk about rebalancing, retail sales remain stuck around 10%. The latest monthly estimate was barely above August’s low level. At 10.3%, it appears as if China’s consumers are stuck with China’s industry – because they are.
The real bad news, however, was Fixed Asset Investment. After all the fiscal “stimulus” piled in during last year, there really is nothing to show for it. Not only is Chinese industry mired in the continually poor state of global growth, Chinese infrastructure spending has once again ground near to a halt. Total FAI, on an accumulated basis, was just 7.5% in September – the lowest level of growth since 1999!
The worst part of that is private FAI, or what really made China into modern China. For four months last year, private FAI growth collapsed, actually contracting for two months before “reflation” kicked in. But, as around the rest of the world, that “reflation” just didn’t last long, nor did it produce any lasting effects, psychological or otherwise.
Private FAI growth in September alone (not accumulated YTD) was just 3.9% year-over-year, after growing by only 3.0% in August. Outside of those four months last year, these last two would have been the worst in the series – which is really the point here. For all the “stimulus” and sunshine rhetoric, China’s economy three quarters through 2017 is right back in the same place as it was last year when mainstream rhetoric reluctantly opened to the possibility of a “hard landing.”
It is from this perspective that the desperate Hong Kong gamble actually makes some sense. The Chinese cannot right now de-dollarize, and so the best option among only bad options appears to be do whatever it takes to stabilize CNY if in the longshot possibility it restarts “dollar” inflows.
Because it is longshot, the parallel to that more covert policy track is to prepare the Chinese people for economic quality over economic quantity (whatever that might really mean). Xi Jinping’s three and a half hour speech covered a lot of ground, but more than anything “rejuvenation” along these lines is their only choice. The NBS numbers leave little doubt on that account, certainly proved enough for Communist officials that a no-growth world was just announced, I believe, as China’s official baseline doctrine.
They know only too well they have a eurodollar problem, but the rest of the world still doesn’t know a single thing about eurodollars. China can’t renegotiate the eurodollar system unilaterally with only themselves. Thus, what else can they do but work behind the scenes for ad hoc de-dollarization while out front making the best of a truly dangerous proposition. Make China OK with not Great just doesn’t have quite the emotional emphasis to really do that, but that’s what is being labeled rejuvenation.
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