Commentary on Political Economy

Tuesday 18 April 2023


Why China will be this year’s wildcard

China's economy rebounded rapidly in the first quarter of the year as COVID-19 restrictions were lifted. Its economy grew 4.5 percent year on
    Chinese economy rebounds after COVID restrictions lift

    The latest Chinese economic growth number is doubly rubbish as any sort of meaningful economic indicator.

    But it nevertheless raises the very important question of whether a ‘China boom’ – or at least, strong and sustained growth in the Chinese economy – could be the unrecognised and certainly unexpected wildcard in the global financial and economic outlook through the second half of 2023 and all of 2024.

    The quarterly Chinese GDP numbers are always rubbish – a sort of utterly unknowing announcement that for all its glitz and its billionaires, China remains at core and pervasively a Stalinist state.

    Any and every ‘statistic’ means precisely what the state wants it to mean. You only have to look at the calendar to understand that.

    It’s less than three weeks since the end of the March quarter, but the Chinese statistician purports to be able to publish the most detailed data on what happened right across that vast and complex economy – mixing 18th century peasantry with 21st century high tech – for all of that quarter. In contrast our March quarter GDP number will only surface in early June. It may be a tad tardy, but three weeks? Pull the other one.

    Now, this is always the case. Then add on the fact that this is China’s first ‘post-Covid’ quarter; the first full period since it abandoned its zero-Covid policy. That renders the numbers even more dodgy.

    A medical worker takes a swab sample from a person to be tested for Covid-19 in 2020. (Photo by Hector RETAMAL / AFP)
    A medical worker takes a swab sample from a person to be tested for Covid-19 in 2020. (Photo by Hector RETAMAL / AFP)

    Remember when our GDP leapt 3.9 per cent – an annualised growth rate of nearly 16 per cent – in the September 2020 quarter, when we came out of that first national lockdown?

    And again, when national GDP leapt an almost as much 3.7 per cent in the December 2021 quarter – nearly 15 per cent annualised - when NSW and Victoria came out of their last lockdowns?

    On that basis the 4.5 per cent March quarter growth reported by China is dismal; almost their version of a recession after all those years of (at least, claimed) 7-9 per cent growth.

    But I refer you back to factor one.

    They chose 4.5 per cent. It’s not productive to try to guess why they chose that number, but they did.

    The substantive question it poses is whether a post-Covid China will aim to roar quickly back to high-growth – a high growth that will be demanding our resources exports.

    Beyond that we get into more complex uncertainties.

    Can China go back to even sustained 5-6 per cent (real) growth?

    Or is the Chinese export-focused, massive infrastructure-spend growth model broken, with China drowning in its own multi-trillion dollar debt bubble?

    All that could well prove true.

    But I suggest that the can – correction: cans, plural –can still be kicked down the road a bit. That there’s still some life left in the China growth-model, precisely because of the Covid disruptions

    Whatever which way, China is going to be the significant wildcard through 2024.

    It’s even more ‘big enough to matter’ than it was coming out of the GFC in 2008.

    And we know the entire industrial world is locked in a rates-versus inflation battle, at least into 2024.

    China can and will make the difference.

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