China is “by far” the world’s “best-performing big economy” this year, says The Economist. GDP grew by 3.2% in the second quarter compared with a year before. A recovery is now well under way following a 6.8% fall in the first three months of the year. Economists treat China’s GDP statistics with justified scepticism, but “alternative indicators” such as coal consumption and traffic congestion tell a similar story.
The recovery is being led by manufacturers, says Jonathan Allum in The Blah! newsletter. Industrial production rose by 4.8% year-on-year in June, but retail sales undershot expectations, registering a 1.8% contraction. That makes this recovery dependent on selling products into world markets, not ideal at a time of weak global demand and a growing backlash against imports from overseas. “How much kit will Huawei [export] to the UK in the future?”
The GDP figures have been flattered by a “massive surge in metal-bashing for infrastructure projects”, agrees Ambrose Evans-Pritchard in The Daily Telegraph. Much of the funding is being channelled through “chronically inefficient state-owned enterprises” that don’t respond to market signals. China seems to be repeating the mistakes of its massive post-2008 stimulus, which saw vast amounts of ill-targeted infrastructure spending push the economy into a “debt trap”.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The Institute of International Finance’s Global Debt Monitor reports that total debt in China across households, governments and corporations started the year at just over 300% of GDP, but is now “fast approaching 335% of GDP”.
The backing of a one-party state means that China’s debt bubble is very unlikely to pop, writes Mike Bird in The Wall Street Journal. But that doesn’t mean it does no harm. Research shows that misallocation of capital – especially into the bloated housing sector – acts as a slow-burning drag on productivity. With GDP per capita of $10,262, China has miles to go before it catches up with advanced economies. Overinvestment in real estate won’t help.
Cooling the rally
The positive data has made it easier for the authorities to tout a “healthy bull market”. The CSI 300 is now up more than 12% for the year-to-date. Retail investors make up 80% of trading, so sentiment rules the roost. The surge has brought back “bad memories” from 2014-2015, says Craig Mellow in Barron’s. Domestic shares “more than doubled in seven months” before losing 40%. Yet regulators seem to have learnt their lesson, moving to tighten margin requirements to cool the euphoria. That means this rally may not have much further to run. But in the long-term Chinese markets could become less of a roller-coaster ride.
-
How taking a two-year career break could leave a £26k hole in your pensionCareer breaks are increasingly common but it is important to take steps to protect your pension, as gaps compound over time
-
Cash in on your attic: Thousands could be sitting dormant in your storageSelling your valuables at auction could be far more lucrative than you think. We take a look at how auctions work, and some tips to help you maximise your profits
-
'Rachel Reeves' plan to force pension funds into UK assets won't work'Opinion Hustling pension fund cash into British assets sounds like a good idea. It would be better to make Britain an attractive place to invest, says Matthew Lynn
-
Supersonic travel: How China could 'leapfrog' US and Europe's commercial aviation industryOpinion Innovation in commercial aviation has been stuck for 60 years. A commercial supersonic jet might be back on the market soon, but will China get there first?
-
How British businesses can tackle Trump's tariffsThe majority of British businesses are likely to take a hit from the chaos caused by Trump’s tariffs to reorder global trade. Companies in the firing line face some difficult decisions, says David Prosser
-
Trump wants to colonise Mars – will it happen?Donald Trump wants to plant the US flag on Mars. Could humans really live there?
-
Why are energy bills so expensive in the UK?Electricity bills in the UK are higher than in any comparable rich country. Some blame the net-zero zealotry of the government for that. What is really to blame for high energy bills?
-
Will Putin invade Europe? Why investors know Russia is a paper tigerOpinion Markets are right to ignore talk of Putin invading Europe, says Max King.
-
Why French far-right leader Marine Le Pen has been banned from running for officeMarine Le Pen, presidential candidate and leader of France's right-wing National Rally party, has been barred from standing by the country's judges.
-
Five years on: what did Covid cost us?We’re still counting the costs of the global coronavirus pandemic – and governments’ responses. What did we learn?
