IF you are getting your news—and perceptions—about China from the local press, you are woefully ignorant of what is happening in the “Middle Kingdom.” Most reports center on the actions of the Red Dragon in the Philippine economic zone and that is rightfully important. But what is missed about that issue is that the Beijing government is using its self-inflicted conflict with the Philippines for domestic propaganda purposes.
There is no better way to quell domestic unrest, primarily economic, than to find an enemy that the people can then rally behind the government to protect its “national sovereignty.”
One story picked up from Reuters a few days ago in one major local newspaper was nearly 2,000 words under the headline “How North Korean eyelashes make their way to West as made in China.” Other pertinent information about China might be found on the business page regarding the local stock market. “Negative sentiments on China impact PHL shares, peso on Tuesday” but then again that was on July 18, 2023.
A hint about China’s problems came from BusinessMirror a couple of days ago from Bloomberg with the headline “China’s Lunar New Year pork gloom exposes deep economic trouble.” It was a serious article highlighting the Chinese pork glut. “In Beijing’s Xinmin market, vendor Wu Aizhen is struggling. Though pork prices have fallen by about a fifth compared to a year ago, she is selling a third less than she would in a normal holiday season.” Falling pork prices, combined with significantly lower consumption, is the tip of economic iceberg.
The average person has scant awareness of China’s current economic situation.
Retail investor bubbles are a result of the herd mentality that gets everyone in on the way up and then when buyers stop buying, prices peak. A lack of liquidity at the top then causes sellers to scramble to get out and then prices crash. Most bubbles happen because of government intervention, as in the case of the Global Debt Crisis when the US government facilitated “bad credit home ownership.” China created its property bubble with massive overbuilding.
But the Chinese stock market crash is somewhat different, more similar to the US “Dot Com” bubble in the 1990s, which was fueled by corporate—not government—misallocation of resources as venture capital money flooded the start-up and IPO market.
Causes notwithstanding, since end December 2021, the broad-based CSI 1000 (1,000 small market capitalization issues) index is down 47 percent, losing 27 percent this year-to-date. The S&P China A 300 Index is off 8 percent since its January open and the Shanghai Composite has lost 9 percent. Even the Hong Kong Hang Seng Index has lost nearly 10 percent in 2024 to a fresh five-year low. The other indexes are back to pre-pandemic levels.
However, commentary on the Chinese markets is about on par with commentary on the PSE. “Chinese Stocks Crater After Trump Confirms He Will Impose 60 percent Tariffs.” The US presidential election is in November but a new administration does not start until the end of January 2025. So, Trump may or may not be elected president and may or may not enforce huge tariffs on Chinese goods, which may or may not hurt Chinese businesses. But in any event, all this is one year away. But apparently that is why Chinese investors sold yesterday.
The Chinese markets are only reflecting the disaster of the Chinese economy.
“China is merging hundreds of small rural banks to stomp out bad loan conditions,” Bloomberg reported. “In 2022, the bad-loan ratio of small banks was twice that of the whole sector. But previous mergers didn’t necessarily improve this.”
The Chinese government says that the “Chinese yuan outpaces US dollar to become most traded foreign currency in Russia.” The markets say the yuan has lost 13 percent against the US dollar since January 2022 and four percent in 2024.
Four of the last six months saw price deflation in China, a result of lower consumer demand. “Deflation is starting to wield its ugly head. Consumers are waiting for discounts. They’re very nervous,” says the China Market Research Group. For the past 12 months, consumer confidence has never been any lower historically. With the property downturn in its third year, housing starts have fallen by more than 60 percent relative to pre-pandemic levels.
There are no rays of sunlight peeking through the dark Chinese economic storm.
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