Chinese Economy Limping into the Year of the Dragon

2024-02-12 16:00:17

This weekend marked the Chinese Lunar New Year and the start of the Year of the Dragon.

The last time we checked in on that nation, Chinese officials tightened export controls due to new rules the US had implemented related to semiconductor manufacturing.

It appears that other nations are now joining the US in building up supply chains that do not involve China. Canada has seriously strengthened its access to lithium, a critical component of batteries and other modern tech.

Canada has overtaken China in BloombergNEF’s Global Lithium-ion battery supply chain ranking, an annual assessment that rates 30 countries on their potential to build a secure, reliable, and sustainable lithium-ion battery supply chain.

This marks the first time China has not claimed the number-one position. Canada’s consistent manufacturing advancements and strong ESG credentials have made it a leader in future battery supply chains. Its strong integration with the US automotive sector and commitment to policy at both provincial and federal levels contribute to its ranking in BNEF‘s ranking.

This appears to be one sign among several that indicate China is limping into the Year of the Dragon economically.

While US media attention has been focused on Biden’s decrepitude and Suoer Bowl, China’s stock market has recently bled out $7 trillion dollars worth of value.

China’s efforts to arrest a $7 trillion stock market rout are evoking memories from 2015, when Beijing took drastic steps to stem a crash. This time, investors say, the problems are much more entrenched.

Authorities have snapped into crisis mode to support China’s tumbling markets, taking aim at short-sellers and freeing up cash for banks, while state funds are boosting purchases. Signaling the growing alarm, China abruptly ousted its market chief Yi Huiman on Wednesday, rolling out another hallmark of the near decade-old blueprint to boost stocks.

“The shuffle demonstrates that the political impulse remains to tighten administrative controls rather than address fundamental problems facing the economy,” Eurasia Group analysts wrote in a note after the surprise shake-up. Rather than helping, they wrote, “it entrenches the sense of malaise and weighs on confidence.”

The Chinese market has lost the combined gross domestic product of Japan and France. Meanwhile, Chinese officials are trying to give the economy the “Wuhan Treatment,” which says they are suppressing all bad news related to a recent stock market plunge.

In recent week, the state security ministry has reportedly made clear Beijing is on the lookout for those disseminating negative views on China’s economic and market prospects. This chilling warning not to “denigrate China’s economy” via “false narratives” is Mao Zedong, not Adam Smith. And it raises troubling questions as China’s influence soars.

China’s top intelligence agency is saying the quiet part out loud as it prioritizes “strengthening economic propaganda and public opinion guidance.” The truly disturbing question, though, is what’s written between the lines in bold font.

In January, Bloomberg reported that Citigroup is discouraging its private bankers from discussing China’s currency or strategies to hedge the yuan when visiting the mainland. More recently, Xi resurrected the “Article 23” stunt the Communist Party has been trying to impose on Hong Kong for two decades now.

This vaguely worded law is meant to bring a city once considered the London of Asia more in line with China’s curbs on information deemed dangerous to the state. It builds on sweeping changes China foisted upon Hong Kong in 2020, following widespread protests a year earlier.

The Chinese have taken some steps to stem the bleeding, but financial analysts indicate that there won’t be a turn to the Year of the Bull Market any time soon.

Bloomberg News reported that authorities are considering a stabilization fund worth around $280 billion, to prop up share prices. And Reuters has reported strong buying activity in recent days, consistent with what analysts say is a pattern of market-buoying action at times of trouble by the “national team” of state-backed investment firms.

…So far, the effects have been limited. But Wu expects the intervention to ultimately make a difference — at least in the way it eventually did in 2015 and 2016, during the market’s last big nosedive.

“I would say this time it’s probably the same thing in the sense that these policies are good enough to stop that downside,” [Winnie Wu, China strategist at Bank of America in Hong Kong] says, referring to the possibility that shares continue to fall indefinitely. “But it’s not good enough — or it’s not even intended — to drive a rally or drive a bull market.”

For that, she says, China has to address its macroeconomic challenges — deflation, a property crisis, low confidence and consumption and unanswered questions about what sectors are going to propel the Chinese economy into the future.


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