After severe jitters in 2015 and 2016, the Chinese economy and its foreign exchange rate have been mostly stable in 2017. Except for volatility in interest rates and the stock market, everything seems fine ahead of the important party congress to be held this fall. At the congress, the regime will confirm the next party leadership.
Of course, official figures, like the 6.9% annualized GDP growth rate released for the first quarter of 2017, are unreliable and merely a rough indicator of where the journey is going, Seeking Alpha reported.
To provide a more accurate read on China’s economy, Leland Miller and his team at China Beige Book International interview thousands of companies and hundreds of bankers on the ground in China each quarter. They collect data and perform in-depth interviews with Chinese executives. The CBB’s recent report confirms the eerie stability of the Chinese economy.
“So far, 2017 has played out as a best-case scenario… The remarkable absence of both domestic and foreign shocks has created the stable environment corporates need to outperform most expectations, including ours,” states a preview to the full Q2 2017 report.
The retail, services, and manufacturing sectors all showed an increase in activity. Hiring was also better than in an already good first quarter. According to the official unemployment rate, this is hardly ever a concern, as it has been hovering between 3.97% and 4.3% for the last decade. However, when the real economy dipped in 2016, the China Labor Bulletin logged a total of 1,378 strikes and protests in the second half of last year.
Extend and Pretend
However, despite the overall positive response from the firms surveyed by CBB, there are a few traditionally Chinese “extend and pretend” caveats to the rosy picture. For example, every sector reported record inventories, which is positive for production and jobs, but not for sales. If the stocked products aren’t sold shortly, it will hit the companies’ bottom line.
“The same companies who report solid results on most indicators also continue to show cash ?ow in the red-corporate health has not yet responded to better growth,” states the CBB preview.
Then there is the credit market, a source of worry for China watchers since the end of last year. China’s bank borrowing rates have been creeping up from 3% to almost 4.5% since late 2016, and CBB notes that this is now affecting the bank’s corporate customers.
“In Q1… credit tightening was limited to interbank markets. In Q2, it hit firms: Bond yields and rates at shadow banks touched the highest levels in the history of our survey, and bank rates their highest since 2014,” states the report.
According to CBB, however, overall borrowing was relatively stable, despite higher costs and the fact that corporate bond issuance collapsed in 2017.
Consumer Market to Grow $1.8t
China’s GDP growth may be slowing down, but its consumer economy is still growing fast. China’s consumer market is growing at an annual rate of 10% in recent years, outpacing any other country in the world, according to a report released by the US Boston Consulting Group and AliResearch (research arm of China’s Alibaba Group) at the 2017 Summer Davos in Dalian, Xinhua reported.
By 2021, China’s consumer market is expected to increase by $1.8 trillion–roughly the size of Germany’s consumer economy today. A quarter of the total consumption growth in major economies is coming from China.
China, the world’s second largest economy, thus represents one of the biggest opportunities for consumer companies in the world for the foreseeable future.
The report names three principle factors behind this rapid growth. China’s consumer market is benefitting from an emerging upper-middle class and an increasing number of affluent consumers, the new generation of consumers and online shopping.
Jeff Walters, one of the authors of the report, noticed that in addition to the expanding consumer market, Chinese consumers are also gradually buying more high quality products. “Digital technology is the main factor to boost the growth of consumption. Compared with other countries, the ratio of online consumption is higher in China,” he said.