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China shares with Donald Trump something more common than a trade war. The shared interest: avoid a collapse in 2020.
The attention of the American president on next year is well understood. He is so obsessed with masquerading as a winner, no matter the facts, that he would rather burn America than concede defeat. So winning the 2020 election is everything.
China's challenge for 2020 also concerns the fear of losing. C & # 39; is, control of its economy.
The fates of Trump and China became closely linked when the former bet his foreign policy legacy by attacking the latter. However, China's ability to maintain growth and stability in 2020 is greatly complicated by Trump's tariffs in 2018. And, it is important to recognize its own actions since then.
Something else must be acknowledged – there is just as much bad news as good news in the latest edition of China. economic rebound.
A series of data released Wednesday has thrilled the global markets. This rate included a growth rate above expectations of 6.4% in the first quarter, one year on the other. The more "high frequency" monthly data series also look better. They include industrial production and increased demand for everything from cars to phones to cement and raw steel.
As Chen Long of Gavekal Research puts it, "The world's second-largest economy is more sensitive than expected to the political support measures of the authorities".
Stabilization, for the moment
Exports surged 14.2% in one month in March after a fall of 20.8% in February. This stabilization is a welcome development for the global economy. For the moment.
Although good news for 2019, this has a high cost: total social funding has climbed 40% so far this year. There was a slight rise in parallel banking activity that Xi Jinping had promised to curb. Loans do not focus on the productive sectors, as evidenced by the small increase of 6% in fixed investment.
Accounts receivable accumulate, which is a sign that many businesses are not paid what they are owed. In the meantime, credit cards are the subject of a good training session. Although data is lagged, household balances increased 23% in the fourth quarter year-over-year. This means that a consumer driver not inconsequential has a high cost.
The big question, though, is what happens when Beijing compiles the bill for today. 6.4% growth rate? Or, in this case, the more general picture of generating rapid growth in the decade following the Lehman Brothers crisis.
Last year, even before Trump's US $ 250 billion worth of Chinese goods began to make itself felt, Beijing's public and private debt pile had reached $ 34 trillion. dollars. Add to that the tens of billions of dollars in credit that the state has injected into the economy, including new waves of cash in 2018 and early 2019.
Lack of political will?
These waves keep China Inc afloat. But they suggest a lack of political will on the part of President Xi. It continues to put in place short-term stimulus measures on reform.
"We have doubts," says Diana Choyleva of Enodo Economics. "Chinese leaders said they were willing to tolerate slower growth and understood that they needed to support supply-side reform. But the priming of the credit-fueled pump, evident in the official data of the first quarter, highlights the pressure exerted by the Communist Party to maintain its expansion this year as it marks the 70th anniversary of the founding of the People's Republic. "
Xi's team, he said, could well prepare China for a tough year 2020. Concern is that Beijing is getting closer to a "Moment Minsky"Or when a debt and credit boom ends badly.
This is what happened in Japan in 1990, in Southeast Asia and Russia in 1997 and 1998, and then in Wall Street in 2008. Of course, the largest economy in Asia, with a production of $ 14 trillion would eliminate previous market dislocations.
China has a remarkable gift for confusing skeptics. In 2001, Gordon Chang put forward a plausible argument as to why Beijing's luck was failing "The imminent fall of China. "But not collapse. More recently, Haylyn Capital Management's well-known short sellers Kyle Bbad and Greenlight Capital's David Einhorn are betting on the yuan's decline. They have also argued that debt reduction would wreak havoc in Beijing. The crash of the yuan has never happened.
Admittedly, investors do not tend to get rich in the face of Chinese decision-makers. But Chang, Bbad and Einhorn are right on one point: no developing economy has ever avoided a calculation of the debt. Nobody beats the system, if you want. As skilled as Xi's team is, the crises tend to come out of nowhere and cause far more damage than the decision makers thought.
Officials in Bangkok in July 1997 had no idea what they were releasing when they devalued the baht. Eleven years later, US Treasury officials also did not seem to understand why a financial failure on the part of Lehman would control the financial system.
The dark side of China's rebound is that it is fueled by new bubbles that prevent the older ones from deflating. It poses short-term challenges that the bulls of China have not yet been internalized.
"All political signals from Beijing indicate a constant concern about the resurgence of speculative price rises," said economist Andrew Coflan of Eurasia Group. "If real estate price inflation accelerates, policymakers will put in place new controls even if growth has not fully bounced back."
Long-term risks are the real concern. Admittedly, Trump's onslaught on Chinese foundations required drastic measures. Yet these measures are preparing China for a difficult period in 2020. The global economy too.
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