Welcome to the 193rd edition of Trade War.
First, the state of play for the Chinese economy as the end of the year approaches ~
Despite some scattered good economic indicators, the larger picture for China’s economy isn’t pretty. Deflation is settling in, with a second month of falling consumer and factory gate prices. That reflects what is one of the biggest challenges facing China today: a lack of confidence, both by households and business, exacerbated by a sagging property sector that shows no sign of recovery.
While there have been smaller fiscal moves of support, there is little sign that productivity-enhancing major reforms will come to the rescue. A much-touted plan to end the decades-old household registration or hukou policy seems to be going nowhere. That would unleash new waves of consumption as migrant workers and other rural Chinese—who together make up some one half the population—finally are treated as full citizens, with improved education opportunities for their children, better health care and pensions.
Meanwhile, the Chinese leadership’s obsession with placing national security over economic growth continues to spook foreign investors (check out below what advice Moody’s gave its staff in preparation for the release of its China downgrade). Even worse is the impact at home. The trend to arrest or even outright disappear Chinese entrepreneurs has dealt a devastating blow to the confidence of private business, with Beijing seemingly oblivious to the damage this does to the economy.
And it’s not just internal, self-inflicted wounds. The U.S. continues to hurt Chinese industry by slapping more and more restrictions on access to advanced chip technology. It’s likely to get worse. Witness the recent speech from Commerce Secretary Gina Raimondo where she said artificial intelligence, biotechnology, and supercomputing will all be fair game, as the U.S. expands its clampdown on what can be sold to Chinese business.
2024 looks set to be a rough year for China.
On to this week’s news ~
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