China, China, China. Look at any major financial media outlet right now, and it’s all focused on China’s “failing economy.” The distraction strategy of misdirection is outstanding and hard to spot unless, like many of us with a macro lens, you’ve seen this view before.
Of course, as one of the most important economies in the world, China continues to battle sluggish growth (like the rest of us), with multiple indicators showing persistent challenges despite government efforts to stabilize the situation. A combination of weak domestic demand and external pressures has contributed to this slowdown, leaving policymakers scrambling to introduce new stimulus measures to meet the official growth target of 5% for the year.
Every dramatic scenario being painted about the fall of China is far from the truth. Like many countries globally, still trying to recover from the damage caused by that small blip called Covid, China’s successful recovery isn’t being reported to us in the West, for reasons unknown to many.
Of course, I’m not saying China isn’t suffering. All I’m saying is their economic health isn’t as bad as we are led to believe. Maybe, just maybe, it’s a ‘play’ we’re being exposed to, distracting us from the real issue—that the USA is in far more serious economic trouble, especially as it holds the only currency that matters in macroeconomic terms.
So, the ‘play’ is smart. Stop focusing on me and our economy; take a look at China. Thus, the media wheels start churning out an onslaught of China, China, China.
But as one of my old trader colleagues once told me: “Never underestimate the Chinese. What you think you know is all wrong. If you think they’re financially in trouble, that means they want you to think this. It’s a play.”
While that may be true, I personally believe it’s the US feeding us this story so we won’t focus on the real issue—what’s happening in the corridors of power at the White House.
The Headlines Keep Coming, But Do We Trust the Data?
Unemployment Reaches 5.3% in August
China’s unemployment rate rose to 5.3% in August 2024, slightly higher than July’s 5.2%, marking the highest level since February. This uptick is partly due to the influx of new graduates entering the job market. For locally registered residents, the unemployment rate was 5.4%, while for non-locals, it stood lower at 4.9%. In major cities like Beijing and Shanghai, the jobless rate matched the national average of 5.4%. Workers clocked in an average of 48.7 hours per week, with the unemployment rate for January to August averaging 5.2%—a slight improvement from the same period last year.
Retail Sales Growth Slows to 2.1%
Retail sales grew by 2.1% year-on-year in August, down from 2.7% in July, missing market expectations of 2.5%. This underperformance was largely driven by extreme weather events—heatwaves and heavy rains—that kept consumers indoors. Sales slowed across several sectors, including personal care (1.3%), clothing and textiles (-1.6%), and automobiles (-7.3%). Yet, there were bright spots—food sales surged by 10.1%, and communication equipment shot up by 14.8%. Despite these gains, overall retail trade remained flat compared to the previous month.
Industrial Production Slows to 4.5%
Industrial production expanded by 4.5% year-on-year in August, down from a 5.1% increase in July and missing market expectations of 4.8%. This was the slowest growth in five months, largely due to disruptions caused by extreme weather. While manufacturing and mining lagged, some sectors, like railway, ship, and aviation manufacturing (12.0%) and communication equipment (11.3%), performed well. However, key industries such as non-metallic minerals (-5.5%) and ferrous metal smelting (-2.1%) continued to decline. Month-on-month, industrial output grew by just 0.32%—the smallest increase in three months.
Fixed-Asset Investment Grows by 3.4%
Fixed-asset investment in China grew by 3.4% year-on-year from January to August 2024, slightly below the 3.5% forecast and down from 3.6% in the previous period. Investments in agriculture and the primary sector slowed to 2.9%, while manufacturing and mining in the secondary sector saw a solid 12.1% increase. The tertiary sector (services) rebounded, growing by 4.4%. However, the real estate sector continued its freefall, with investment dropping by 10.2% for the eighth consecutive month. On a monthly basis, fixed investment saw a modest recovery, rising by 0.16% after a 0.17% decline in July.
New Home Prices Drop by 5.3%
New home prices in China continued their downward spiral in August 2024, falling by 5.3% year-on-year—the steepest decline since May 2015. This marked the 14th straight month of price drops, despite Beijing’s efforts to prop up the property market by lowering mortgage rates and reducing home-buying costs. Major cities like Beijing (-3.6%), Guangzhou (-10.1%), and Shenzhen (-8.2%) experienced further declines, though Shanghai was an outlier, with prices rising by 4.9%. Month-on-month, new home prices dropped by 0.7%, the fastest fall since October 2014.
The Headlines Paint an Illusion, and We’re All the Fooling Audience
As of mid-September 2024, both China and the US are facing unique economic conditions. In the US, unemployment hovers around 3.8%, indicating a relatively strong labor market, though there’s been some softening compared to earlier this year. Meanwhile, China’s urban unemployment rate sits at 5.2%, with particular concerns about youth unemployment, signaling struggles in integrating younger workers into the economy.
Inflation rates tell a different story. The US has seen inflation settle at 3.2% year-on-year, down from the higher levels of 2022, thanks to tighter monetary policies. On the flip side, China’s inflation is barely registering at 0.4%, largely driven by weaker domestic demand and a cautious economic recovery.
Industrial production is another area where the two giants diverge. China’s industrial output continues to grow, up 5.1% year-on-year, though the pace has slowed. In contrast, the US saw a 0.2% decline, with weaknesses in mining and utilities dragging down overall performance.
These indicators reflect the diverging paths of the world’s two largest economies as they navigate post-pandemic recovery and face global challenges.
Is it all ‘A Play’?
The illusion of China’s economic decline is a narrative we’re sold daily. Yet, if we scratch beneath the surface, we see a more nuanced reality. Perhaps it’s time we stop being the fooling audience and start looking beyond the illusion
