Eve here. Simon Watkins is a die-hard Anglophone supporter, so his posts require considerable attention. Nevertheless, despite his strength prejudice In some ways, his works often contain interesting facts. When it comes to China, if we take a step back, the statement in this title may not be viewed as controversial.
China is in the unfortunate position of trying to implement the ‘trees grow to the sky’ fallacy. An economy as large as China cannot consistently grow appreciably faster than global GDP growth. Global GDP growth forecasts range from 3.0 to 3.5 percent. China cannot sustainably exceed global GDP growth without eating into global GDP, an outcome that many other countries cannot accept. However, high growth rate is the key to the legitimacy of the current government. The reality is that if the benefits of growth are distributed reasonably well across society, the population is likely to accept a significantly smaller amount. I don’t know China well enough to judge whether that is a realistic way to break out of China’s high-growth fixation.
Moreover, between increasing resource scarcity, poor harvests and mass migration due to global warming, and high levels of international and population growth, there are reasons to believe that global growth will not exceed the 3.0 to 3.5 percent level in the long term. Representative examples include internal conflicts and efforts by the United States and the European Union to punish Russia and China for disrupting the supply chain. A specific factor is that Syria’s loss appears likely to throw a spanner in China’s Belt and Road project (See Colonel Wilkerson for confirmation.).
And in China’s case, the loss of housing wealth reduces China’s real savings levels. Given the lack of a social safety net, people’s impulse to save more to compensate will hinder China’s transition to a more consumer demand-driven economy.
Written by Simon Watkins, former senior FX trader, salesman, financial journalist and best-selling author. He was Head of Forex Institutional Sales and Trading at Credit Lyonnais and later Director of Forex at Bank of Montreal. He subsequently served as head of weekly publications and senior writer for Business Monitor International, head of fuel oil products at Platts, and global editor-in-chief of the research division at Renaissance Capital in Moscow. Originally published here: OilPrice.com
- China is adopting loose monetary and active fiscal policies to raise its growth rate to above 7%.
- High youth unemployment, defaults in the real estate sector, and non-performing loans totaling trillions of dollars pose serious risks to achieving this goal.
- Under a potential President Trump, higher U.S. tariffs could further strain China’s economic recovery efforts and international trade.
Amid continued domestic and international concerns about the scale and sustainability of China’s post-COVID-19 economic rebound, China announced on December 9 that it would adopt an easy monetary policy next year for the first time in 14 years. Active fiscal policy to stimulate economic growth.
Measures already in place earlier this year could put China on track to achieve its 2024 growth target of “about 5%,” but these new measures are nowhere near returning to the 7%-plus annual economic expansion that was common in China before the major outbreak. aims to do so. Statistics on the pandemic at the end of 2019. “This is the shame of the Chinese Communist Party. [Chinese Communist Party] Failure to achieve these growth rates soon poses an existential threat to both, as the United States must ensure the security of its governance at home and the continuation of its policy of power projection abroad,” a senior energy security official linked to the U.S. Treasury said exclusively. OilPrice.com last week.
Domestically, the long-standing contract underlying China’s Communist Party rule was that citizens would accept curbs on personal privacy and freedom in exchange for improved standards of living. This was relatively easy to achieve in the model’s early stages, with hundreds of millions of people moving steadily over time from relatively poor agricultural areas to relatively more prosperous urban areas. The resulting increase in national economic growth has been remarkable, with gross domestic product (GDP) increasing by more than 10% per year for several years, albeit from a relatively low base. As urban momentum accelerated, so did a boom in construction and manufacturing for the products needed by the burgeoning population, which in turn fueled a dramatic expansion of China’s manufacturing exports. Even after this growth model shifted to a growth model defined by the rapid expansion of the middle class, growth rates in demand for consumption-driven goods and services remained very high.
However, as this began to decline with the advent of COVID-19, unemployment rates have risen sharply across the country, particularly among key youth groups. The Chinese government is acutely aware of the possibility that high youth unemployment could lead to widespread protests. We also know that the average youth unemployment rate in these countries was 23.4% just before the series of violent uprisings in 2010 that launched the Arab Spring. It stopped releasing youth unemployment data in June 2023 after its own figure hit a record 21.3%, and only resumed after changes to data input.
As a result, the pandemic appears to have broken the long-standing contract between people and their governments, as restrictions on individuals’ privacy and freedoms increase and living standards for large segments of the population decline. And for the first time since the mid-1980s, which culminated in the Tiananmen Square massacre in 1989, the Chinese Communist Party faced a wave of public protests across the country. In an unusual move for President Xi Jinping personally, this included protesters chanting “Xi Jinping, step down!” “Go away, Communist Party!”. Internationally, the United States is also watching this development and is well aware of the framework agreement that allows the Chinese Communist Party to continue to rule in China. We also know that China’s influence abroad depends on its ability to leverage its significant financial investments in strategically important countries for political influence.
What’s worse for China is that Donald Trump’s second term as president will likely take a much tougher approach to China than his first. At his first National Security Council meeting in 2017, President Trump described China as a “strategic competitor” who, along with Russia, is seeking to “create a world opposed to American values and interests.” In 2020, he gave a lengthy speech detailing the many ways in which he saw China “tearing apart America for decades like no one has ever done before.” And even before he took office this time, his campaign trail included constant remarks that he would significantly increase trade tariffs against China. President Trump’s second term effectively heralds the resumption of the US-China trade war, Eugenia Victorino, head of Asia strategy at SEB in Singapore, told OilPrice.com exclusively. “The phase one deal will be renegotiated with the United States.” [Robert] The Lighthizer plan is likely to be implemented, which will result in an increase in average tariffs from 13% to around 22%,” she said. However, this may be the prelude to a new trade war between the two countries, as US tariffs on China were gradually increased during the 2018-2019 period of the previous trade war. Victorino emphasized that by September 2019, up to $250 billion worth of Chinese imports will be subject to a 25% tariff, and $120 billion worth of imports will be subject to a 15% tariff.
That said, she emphasizes that China may be better prepared for a resumption of such hostilities than last time. “In 2018, exporters assumed that the threat of 25% tariffs on a wide range of goods was just a negotiating tactic, but this time around they have been working under the assumption that average tariffs will increase by around 30-45%.” she told OilPrice.com. “Furthermore, Chinese exporters have managed their margins over the past six years,” she concluded.
But nonetheless, the monetary and fiscal policy measures that China is likely to take to boost economic growth will likely increase the key annual rate above the 7% needed to ensure the Chinese Communist Party’s rule at home and the continuation of its policy of projecting power abroad. Revert to growth rate. Mehrdad Emadi, head of Betamatrix, a London-based risk analysis and energy derivatives markets consultancy, spoke exclusively to OilPrice.com last week. “On the monetary policy front, China is already allowing relaxed lending in the construction and housing sectors to prevent a second wave of bankruptcies and defaults by property developers, with recent estimates showing underperforming mortgages and non-performing loans between companies. “The value was found to be between US$4.3 trillion and US$5.2 trillion,” he said. “The new relief loans issued by the monetary authority and the extension of credit to construction companies by state-owned banks show how serious a threat this could be if a sustained recession and loan defaults are left to market forces,” he emphasized.
According to Emadi, US$840 billion of these relief loans have been provided and a further US$250 billion is ready to be provided. According to recent estimates, the housing sector accounts for about 20-25% of the Chinese economy. He added that China is also considering providing $12 billion worth of credit lines at almost no cost to the auto industry to prevent it from becoming too vulnerable.
At the same time, he told OilPrice.com the fiscal policy change was likely aimed at preventing local authorities from getting further into land-bundling deals, where they sell land to construction companies but receive little in return after the fact. -2018 period. “The hope was that if the construction company sold the new apartments, the local authorities would receive payment for the land,” Emadi said. “However, this has become a real ‘dragon’ for the economy as the deficit accumulated by local authorities based on land-linked transactions is between US$12 and US$15 trillion. This poses a real threat of bankruptcy to areas that are too involved. “It’s that kind of activity,” he emphasized. “Despite Beijing’s enormous foreign exchange reserves, [US$3.37 trillion equivalent]He added: “The scale of bad finances arising from these factors raises real concerns about the ability of the Chinese government to implement the reforms needed to achieve a measurable and meaningful growth rate of 7% or more.” At the very least, the Chinese Communist Party and President Xi Jinping are likely to be concerned that these macroeconomic factors have become very personal for their citizens. “China’s officially reported household savings of $19.2 trillion are misleading and appear to be about 31% lower than they actually are, due to real estate defaults, non-performing loans, falling housing prices and rising unemployment,” he concluded.
