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.
-
Is the Office for National Statistics in turmoil?Britain’s statistics authority, the Office for National Statistics, is increasingly unfit for purpose. Why, and what can be done?
-
Saba Capital and Boaz Weinstein respond to investment trustsAs investment trust managers and industry experts accuse Saba of self-motivated opportunism, the hedge fund responds to specific "misleading claims" and sets out its stall
-
Is Xi Jinping ready for Donald Trump's tariffs on China?The ascent of Donald Trump will bring new challenges for Xi Jinping
-
South Korean won hits 15-year low – what it means for 'Korea discount'After Yoon Suk Yeol's failure to declare martial law, South Korean markets are reeling, with the weakest won since 2009. Will this worsen the Korea discount?
-
Vietnamese tycoon Truong My Lan on death row over the world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Japan’s medium-sized stocks provide shelter from trade warsNicholas Price, portfolio manager of Fidelity Japan Trust, tells us where to invest in Japan
-
What South Korea's martial law turmoil means for the economyA shock declaration of martial law in South Korea was swiftly put down, but it exposed the nation's vulnerable democracy. What happens now?
-
India's stock market drops - why it's thrown investors into frenzyNifty 50, India's stock market index, has dropped 8% from a September record amid concerns of an economic slowdown and foreign investors pulling out
-
Is India still a good investment?India's long-term story is compelling, but after a spectacular bull run, warning signs are starting to show. Is investing worth the risk?
-
Rouble hits two-year low against the dollar – what does it mean for Russia's economy?New US sanctions have plunged the rouble to its lowest level since 2022. Why are investors spooked and how will this affect Putin's economy?
