Trade War

Newsletter 173 - July 16, 2023

Welcome to the 173rd edition of Trade War.

China to announce GDP growth Monday but expected strong figure masks weakness in the economy. Hopes of a boost from global trade evaporate as Chinese exports fall for another month. And Xi Jinping’s emphasis on security over growth is spooking overseas investors, bad news for cash-strapped local governments.

Bearish Goldman Sachs report that warns of banking exposure to local debt raises ire in China. And national pension fund tells asset managers to lessen exposure to LGFV debt.

Chinese hackers broke into emails of Commerce Secretary Gina Raimondo, the top US official working to block rise of China’s advanced semiconductor industry. And executives from America’s largest chip manufacturers including Intel, Qualcomm, and Nvidia to travel to Washington to lobby against expanding export curbs.

And in depth and notable ~

• China’s foreign ministry deletes comment on missing minister from official briefing readout.

• Beijing pushes its culture of secrecy into other countries.

• And my thoughts on why China’s economy may never become number one and how that challenges foreign investors’ business plans.

Introducing the Global China Newsletter

Along with my job ensuring you get your weekly dose of Chinese economic and business news via Trade War, I am delighted to announce my new, additional role as editor-in-chief of the Atlantic Council’s Global China Newsletter.

Global China is laser-focused on reporting China’s growing clout around the world and includes links to some of the best work from the Atlantic Council; I highly recommend checking it out. Subscribe for free in this link.

GDP growth masks economic weakness

While China is expected to announce strong GDP growth for its second quarter on Monday, looks may be deceiving. Consumer confidence remains low as households face declining property values, private business is holding back from investing as policy continues to favor state-run companies and political stability, and a looming debt crisis confronts cash-strapped local governments across China.

So at first glance it may seem surprising that 7 percent growth is expected for the period from April through June, by economists polled by the Wall Street Journal, while a separate survey by Bloomberg puts growth slightly higher at 7.1 percent. Those figures compare to 4.5 percent growth in the first quarter.

“Compared with much of the world, China has been reporting solid headline growth in its economy this year. But for many people on the ground, it feels more like a recession. Or, at least, an economy that is growing very, very slowly,” reports the Wall Street Journal’s Stella Yifan Xie.

“In many ways, it feels like we are back to 2008 when the global financial crisis hit,” says one entrepreneur. “Like most of my business friends, I’m losing faith in the future of the economy.”

One reason GDP is expected to come in deceptively strong: because of the base effect, with growth being compared to the same quarter last year, when China was still suffering under pandemic lockdowns. The more meaningful quarter-on-quarter growth could be as low as 0.8 percent.

“Monthly data for industrial production, retail sales and fixed investment—all scheduled for Monday—are expected to show a marked slowdown in June. Retail sales growth, in particular, likely slid to 3.3% from 12.7% in May,” reports Bloomberg.

“The big problem is that everyone is worried about the future and no one wants to spend,” says Capital Economics chief Asia economist Mark Williams. “There’s a lot more uncertainty about the trajectory of the Chinese economy, including the leadership’s commitment to economic growth.”

Global trade won’t save Chinese economy

Any hope that global trade might help bail out China’s ailing domestic economy is fast fading, as the latest export and import figures show.