Commentary on Political Economy

Wednesday 15 May 2019

How Han Chinese Rats Are Dying Fast

This article just in from The Wall Street Journal
BEIJING—China says domestic spending by its own citizens will minimize the economic damage of its trade fight with the U.S. Yet demand from consumers and factories is looking shaky.
Even before trade tensions ratcheted up in the past week or so, China was facing headwinds as it worked to expand its middle class and make the world’s No. 2 economy more consumer-driven. Economic figures released Wednesday and in recent weeks show slowing activity by consumers, as well as factories, and add to doubts about China’s domestic playbook for the protracted trade dispute.
A 7.2% rise in retail sales last month from April 2018 marked a substantial 1.5-percentage-point reduction from the year-over-year rate in March. April’s pace was last seen when China ordered people to stay home during the SARS pneumonia more than a decade and a half ago. Some economists had predicted April sales would grow 8.8%. Now they expect the government to expand the stimulus measures employed last year and at the start of this one.
Since President Trump dialed up trade tension last week with new tariffs and threats of more, Beijing retaliated with a set of punitive levies and said, via government media, it wouldn’t be cowed because exports matter less than ever to an economy three-quarters powered by consumption. The idea is China’s 1.4 billion citizens, each representing nearly $10,000 in gross domestic product, will “hedge the impact of Sino-U.S. trade frictions,” as China Central Television put it in a commentary.
Liu Aihua, a spokeswoman for the National Bureau of Statistics, echoed that theme during a presentation of the new data on Wednesday, describing China’s nearly 400-million-strong middle class as a “new driver” whose employment prospects will brighten as services develop.
“A trend toward greater consumption is apparent,” Ms. Liu said.
Businesspeople say Chinese consumer sentiment had already been damaged by earlier phases of the trade dispute, and now Sino-U.S. divisions appear to be hardening. Damaged confidence has a lot to do with why, for instance, Chinese passenger-car sales fell in 2018 for the first time since the country became an important car market, a turn with knock-on effects for leather, robot and chemical makers.
“The real issue is confidence,” said Yao Yang, director of Peking University’s China Center for Economic Research.
The hit to sentiment adds to anxiety in an already cooling economy as the government deals with heavily indebted companies and investors reduce exposure to risks.
Other data on factory activity and investment released Wednesday likewise pointed to weakening performance. It is a turnabout from the economist optimism of a month ago when tax cuts, easier access to financing and other government measures appeared to position the economy to easily attain Beijing’s 6% to 6.5% GDP growth target this year.
Industrial output gained 5.4% in April from a year earlier, slowing from an 8.5% year-over-year increase in March, while investment in fixed assets such as infrastructure and property during the first four months of this year rose 6.1% from a year ago, slower than the 6.3% pace this year through March.
Nomura economists called the latest performance a “double dip.”
Some retail-focused companies say their China business is going gangbusters. IMAX Corp.’s chief executive recently told investors its box-office revenues rose 34% in the first quarter.
“It’s very exciting to see what’s possible in China,” Hasbro Inc. Chief Executive Brian Goldner recently told analysts, explaining that the toy-and-media company has benefited from tie-ins with online giantTencent Holdings Ltd. and broadcaster CCTV.
Unless the U.S. and China find an offramp, the tit-for-tat tariffs set in the past week now threaten to add surcharges up to 25% on a substantial chunk of goods traded between the two countries, whose trade totaled $660 billion last year. Mr. Trump says tariffs are an effective way to pressure Beijing to complete a trade deal, while China’s leadership says it has no choice but to retaliate.
The actions weakened China’s currency and stock market, while some economists are forecasting a million or more possible job losses.
Chinese households also face other challenges. Personal debt, mostly attributable to mortgages on the country’s pricey apartments, has crimped spending. While Chinese incomes have risen quickly in recent years, Organization for Economic Cooperation and Development figures show middle-class families in China still only earn a fifth of U.S. levels.
Also, consumer prices are edging higher, up 2.5% in April from the same month in 2018, though official figures so far show limited impact from a virus that is sharply cutting into the country’s important pork supply.
Elsewhere, empty malls around China point to rising difficulties for retailers, which appear to be about more than the country’s rapid shift to online consumer spending. Clothing sales fell 1.1% in April.
French hypermarket group Carrefour SA, one of the biggest global retailers in China, says its sales tumbled about 10% last year to 3.65 billion euros and that it has explored selling a stake to Tencent. Neither Carrefour nor Tencent responded to a request for comment.
Forever 21 Inc., a Los Angeles fast-fashion retailer that jumped into China seven years ago, is now exiting, according to a Chinese-language notice on its websites. Executives didn’t respond to requests for comment.

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