Source: Statistics published on the website of the National Bureau of Statistics of China
Future gains can be guessed from the following example: since August 2019, China’s auto parts exports (which do include batteries) have been multiplied by nine as of August 2021.
It is evident that Xi Jinping and the financial authorities chose to break with the domestic debt spiral, a large part of which is associated with the real estate bubble. Given the Chinese connected entrepreneurs’ and individual investors’ taste for speculation, their belief in implicit guarantees for businesses that have delivered over the years, a hard lesson is being taught. It chimes with other publicized measures against some of China’s billionaire class, as well as the sudden limits placed on the lifestyle of the upper middle class. In China, the joke goes: you never own a share, you merely take care of it for the Party-state…
All of this has international implications, including for foreign investors. Depending on the source, we find that foreign holdings of domestic bonds, whether public or private, have kept increasing, or on the contrary that the acquisitions have begun to slow down over this summer. Much short term investment advice will be to forget about present losses and to focus on the sectors that the Party-state now prioritizes. But these - whether IT hardware or biotech - have very high price-earnings (P/E) ratios. And the lesson being taught is also about uncertainty, not only about heeding government orders. To this day, China has seen increased capital flows from abroad, regardless of the so-called "trade war" or of Western tech purchase restrictions on Chinese companies. Will this hold true for much longer?
In the short term, there is a benefit to the international economies that do not have a large energy or material export component. A large dip, if not a crash, in China’s housing sector should evidently end China’s thirst and dampen prices for these commodities. It also benefits CO2 emissions - whether this was one of the intended targets or not.
Several trends should give us food for thought: the priority given to the "stability" of the financial system over GDP growth, the narrative about national security, the move towards ever higher self-sufficiency while exports are being strongly promoted, the shift from a more cosmopolitan middle class towards populist policies.
Not only has regime security been reconfirmed by Xi’s new political economy, but economic and societal decoupling is bound to accelerate from its various components and from the ideology that underlies it.
Copyright: AFP
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