U.S. tightens exports to China’s chipmaker SMIC, citing risk of military use
No more bets, please. This week, China’s economic version of roulette will be played out in Beijing. Favorite numbers will range from four to six and from five to 65, and even 18.
Figures will be carefully scrutinized as President Xi Jinping and the top echelons of the Communist Party discuss the challenges facing the world’s second-largest economy at the Central Economic Work Conference during the next few days.
Bubbling beneath the surface will be the trade war between Washington and Beijing. Even if a short-term, “phase one” fix is finally hammered out, the fallout will linger from the 18-month conflict.
Check off that number.
“China and the United States are in an age of competition,” Zhang Baijia, the former deputy director of the Party History Research Center at the CCP Central Committee, said.
“While it’s dangerous to underestimate the risks that may arise from such competition, there may be an even bigger price to pay for overestimating the risks. China’s experience indicates that overestimation often leads to greater costs and deprives people of many opportunities,” he wrote on the China-US Focus website.
Overall, this has been a depressing year for China’s economy. So far, signs of stress have appeared in consumer spending, factory production, investment and tumbling exports. The shock waves have even stifled global growth, a report by the United Nations highlighted.
Last month, domestic consumer inflation jumped to a seven-year, high as pork prices soared amid an outbreak of African Swine Fever, which has decimated the country’s hog herd.
To complete a depressing picture, GDP growth in the third quarter dipped to 6%, the slowest rate in nearly three decades.
In the years ahead, it could be close to 4%, another of those key numbers.
“Looking at China’s economic transformation in the past decade in the context of comparable economies from East Asia, China’s growth was normal or even better,” Gao Shanwen, the chief economist from Essence Securities, whose biggest shareholders include sprawling state-owned Chinese enterprises, said.
“However, aging, leverage, and investment rates are in an uncomfortable position, and these are difficult to resolve,” the controversial but influential Gao added in making his pitch for 4%.
For 2020, GDP growth is expected to slip to 5.7%, according to Hu Yifan, the chief China economist of the wealth management division of UBS, the multinational Swiss-owned banking group.
A significant part of the reason behind the slowdown is the decision by Xi’s government to realign the state-backed economic model to high-tech manufacturing and services. Consumption, not cheap low-value exports, is pivotal to Beijing’s blueprint.
Time is also a prerequisite before the benefits start to trickle down.
In the meantime, there are rough seas ahead. Premier Li Keqiang flagged up the risks during a meeting with economists and policymakers in November.
“The current external environment [has become] more complex and severe, with increasing downward pressure on the domestic economy, rapidly rising prices of pork and other products, and increasing difficulties in the business operations of companies,” he said as reported by the Chinese media.
One aspect of concern is rising youth unemployment, classified as those between the ages of 18 to 24. While the National Bureau of Statistics reported recently that the overall rate was slightly under 4%, this particular category could be between five, another of those numbers, and 6%.
Again, Li focused on the problem at a weekly State Council meeting last week when he was quoted in China’s state media as saying “we must take multi-pronged measures to ensure that employment remains stable.”
“Beijing can tolerate lower growth. What they cannot tolerate is high, or even quickly increasing, unemployment,” Trivium China, an economic consultancy, wrote in a note.
Finally, there is a rather large debt cloud hanging over the corporate sector, the Mercator Institute for China Studies revealed in a survey earlier this year.
The German think tank pointed out:
“China’s corporate debt to GDP ratio, a measure of corporate leverage, is now among the very highest globally. It has risen nearly 65 percentage points within a decade, the fastest increase among the major economies.”
Just to recap, that was another of those pesky numbers as the wheel keeps on spinning for China’s economy.