China’s faltering economy took another beating in July, as both import and export numbers came far below expectations. Imports fell 12.4 percent instead of the five-percent slide that was expected, while exports dropped 14.5 percent against an expected 12.5 percent.
“The grim trade numbers reinforce expectations that economic activity could slow further in the third quarter, with construction, manufacturing and services activity, foreign direct investment, and industrial profits all weakening,” Reuters observed on Tuesday.
The Chinese economy is heavily dependent on exports, and the 14.5-percent drop in July was the worst setback China has suffered since the beginning of the Wuhan coronavirus pandemic in 2020. Analysts said this was partially due to weaker consumer spending in some of China’s biggest foreign customers, who are facing significant economic slowdowns of their own.
Xu Tianchen of the Economist Intelligence Unit, seeking to explain the big miss, said:
Economists may be misunderstanding the price factors underlying commodities, which dominate Chinese imports. For example, China is importing more oil but at lower prices; as a result, the volume of crude oil accelerated in July, but the import value slowed. Similar logic holds for grains and soybeans.
Political tensions also played a role, as exports to the United States and Europe were down by 23.1 percent and 20.6 percent, respectively, a larger decline than could be readily explained by high inflation or a sluggish economy in either of those markets.
The grim July numbers increased pressure on the Chinese government to deliver more economic stimulus, a move it has been reluctant to make, possibly because the central government is worried about spending too much or losing control of the economy.
China also hopes to develop more of a domestic market for many of the goods it ships overseas, but those hopes suffered another setback in July as Chinese consumer demand trended down.
The UK Guardian on Tuesday cited analysts who believe China has “slipped into deflation,” a suspicion that could be confirmed on Wednesday when consumer price data for July will be released. The general projection among economists is a 0.4-percent decline in prices, which were essentially flat the previous month.
Sales in China are slowing dramatically as the economy cools down, leaving retailers with little choice but to slash prices in order to clear huge inventories they accumulated back when the Chinese Communist Party promised a roaring post-pandemic recovery. Factories are also cutting prices in response to weak demand and forecast that next year will be even worse because the U.S. will be holding a presidential election, and few of the prospective candidates are likely to speak well of the Chinese government.
The South China Morning Post (SCMP) on Tuesday suggested “de-risking” and “re-shoring” practices by Western countries are hurting China more than its rulers want to admit.
“De-risking” means developing alternate supply chains to become less dependent on Chinese products, while re-shoring means bringing back manufacturing that was outsourced to China long ago — a practice gaining steam as Chinese labor grows more expensive and aggressive Chinese police state tactics make foreign businessmen nervous.
The Financial Times (FT) on Tuesday found the Chinese Communist Party dealing with this bad news in its time-honored fashion: by forbidding anyone to discuss it:
Chinese authorities are putting pressure on prominent local economists to avoid discussing negative trends such as deflation, as concerns mount about Beijing’s ability to boost a flagging recovery in the world’s second-biggest economy.
Multiple local brokerage analysts and researchers at leading universities as well as state-run think-tanks said they had been instructed by regulators, their employers and even domestic media outlets to avoid speaking negatively about topics ranging from fears of capital flight to softening prices.
Seven well-regarded economists told the Financial Times that their employers had told them some topics were off-limits for public discussion. The China Securities and Regulatory Commission, the stock regulator, has accused brokerage analysts of playing up risks facing the economy, which is suffering from weak consumer demand, declining exports and an ailing property sector.
One of the subjects analysts are reportedly forbidden to discuss is deflation, which terrifies the Communist Party leadership because it could signal a collapse in consumer demand. Chinese officials insist deflation is impossible, and television executives have been told the subject cannot be discussed on the air. Several Chinese analysts said the preferred euphemism for deflation is now “subdued inflation.”
Another interesting development reported by the FT is that a growing number of Chinese economists openly distrust the data emanating from their government because they know the Communist Party would not hesitate to lie about the economy in order to boost confidence.
Foreign Affairs performed last rites for the “Chinese economic miracle” and pointed to dictator Xi Jinping’s delirious coronavirus lockdowns as the cause of death because the lockdowns pushed China into the same decaying economic orbit as most other authoritarian governments:
Economic development in authoritarian regimes tends to follow a predictable pattern: a period of growth as the regime allows politically compliant businesses to thrive, fed by public largess. But once the regime has secured support, it begins to intervene in the economy in increasingly arbitrary ways. Eventually, in the face of uncertainty and fear, households and small businesses start to prefer holding cash to illiquid investment; as a result, growth persistently declines.
Since Deng Xiaoping began the “reform and opening” of China’s economy in the late 1970s, the leadership of the Chinese Communist Party deliberately resisted the impulse to interfere in the private sector for far longer than most authoritarian regimes have. But under Xi, and especially since the pandemic began, the CCP has reverted toward the authoritarian mean. In China’s case, the virus is not the main cause of the country’s economic long COVID: the chief culprit is the general public’s immune response to extreme intervention, which has produced a less dynamic economy
In other words, Xi’s lockdowns broke Deng’s unwritten contract that the Chinese Communist Party would focus on its wretched internal power struggles and foreign policy goals while leaving the public economy mostly alone — a bit of vibrant capitalism chained up at the heart of “socialism with Chinese characteristics,” as Xi likes to call his governing philosophy.
In this analysis, Xi’s horrifying and capricious citywide lockdowns destroyed domestic confidence as well as frightened foreign money away. Chinese subjects are now afraid of “losing one’s property or livelihood, whether temporarily or forever, without warning and without appeal,” and the economy is stalling out instead of recovering because the much-touted end of the lockdowns simply did not alleviate those anxieties. The consumer and business confidence needed to overcome China’s other structural problems has been drained away.
