Trade War

Newsletter 134 - October 2, 2022

Welcome to the 134th edition of Trade War.

This week we look at where China is going on multiple fronts —

Is economic growth giving way to stagnation?

China is now growing more slowly than all the developing Asian economies, something that hasn’t happened in over two decades. According to the standard set by its own central bank, its economy is now in a “severely adverse” situation. And how about all those investment banks once boldly predicting it will soon surpass the US? They are going to have to wait a while. China’s economy is likely to shrink in dollar terms this year, widening the gap with the US.

Business bowing to politics?

Remember how those same big investment banks very recently were put on the spot by Washington legislators and forced to say they were ready to divest from China in the case of hostilities over Taiwan? Now China’s security regulator is warning them to not make political statements in the run-up to the 20th Party Congress (and the PBOC is telling financial institutions, including China’s own, to not “gamble” on the rapidly depreciating yuan.)

And an open or closed China?

A debate over whether China should keep its economy open or turn more inward has erupted between two prominent economists. Business schools adopt a more political, pro-Xi approach.

And He Lifeng, the likely successor as economic czar to reformer Liu He, is a Xi confidant who heads China’s state planning agency. While known for his infrastructure-driven, pro-growth stance, his lack of international experience and association with a state-led model may spook market-oriented Chinese economists and foreign investors.

For 1st time in decades, Asia growing faster than China

For the first time in over twenty years, developing economies in Asia are growing faster than China, reports the Wall Street Journal’s Jason Douglas.

The World Bank has cut its 2022 growth target for China from 4.3 percent in June to 2.8 percent today, largely because of the Zero Covid policy and the country’s struggling real estate market.

By contrast, 22 other countries in the region including Vietnam (with its GDP expected to expand by 7.2 percent), Indonesia (5.1 percent), the Philippines (6.5 percent), and Malaysia (6.4 percent) will see growth more than double this year, as they end pandemic controls. More developed economies including South Korea, Japan and Singapore are not included in the October survey.