China’s recovery isn’t suffering from a surplus of optimism. Instead of a boom that would significantly reset the faltering global outlook and give a generous lift to Asia, the expansion may be only a modest tick.
This middling performance is better than none when we are talking about a $18 trillion economy, the second largest in the world and one still in with a fighting chance of overtaking the US this decade. But the rebound is far from the high hopes that accompanied the end of COVID Zero in December. Perhaps China is best seen as two recoveries: A struggling manufacturing one, with limited upside beyond the nation's shores, and a robust domestic scene dominated by consumer spending.
Some of the latest data and official commentary aren’t good news for the first of those. The country requires important support from budgets and interest rates, the Communist Party’s Politburo, the top decision-making body, declared on Friday. The leadership's references to the need for “forceful” policy to shore up growth were little different from the picture the elite group described late last year.
Does this mean the recovery is over six months after it began? Hardly. The Federal Reserve pumped money into the US economy for years after the global financial crisis abated in 2009; several waves of quantitative easing continued until being wound down in late 2014. Like China now, low US inflation then gave the central bank latitude to grease the expansion. Let's not judge China too harshly for wanting to lock in the measured gains that have come from dispensing with draconian pandemic controls. The intent is correct.
Factories are one of the weakest links. Purchasing managers' indexes of manufacturing showed a surprise decline in activity in April. “Bottom line: the recovery is probably too narrow to be sustainable — and risks losing steam,” wrote Bloomberg economists Chang Shu and David Qu. They anticipate the People's Bank of China will cut borrowing costs as soon as this month. The softness in production has a circular quality to it. While the numbers won't do much to buoy the world economy, they also reflect a slowdown underway globally.
Consumers, by contrast, show a voracious appetite for spending. PMIs tied to non-manufacturing dipped, but still remained firmly in positive territory. Early returns from a weeklong holiday in China are encouraging. Some 19.7 million railway trips were made on Saturday, the highest on record for a single day, local media reported, citing official data. Traffic is expected to be 20 percent higher than in 2019, before the pandemic struck. Shoppers were out in force at the weekend, too, with major retail and catering companies seeing sales jump 21 percent from a year ago, according to Ministry of Commerce data cited by state broadcaster CCTV. The housing industry continues to find its feet after last year's slump.
Wallets are opening at home, less so abroad. In a report Friday, Nomura predicted a long wait until international travel from China resembles its pre-pandemic vigor. Outbound tourism is constrained by delays in restoring flight schedules and overseas airport capacity, some lingering COVID-related test requirements, backlogs in processing passport applications and the issuing of visas. That's in the short term.
Over a longer horizon, geopolitics and how Chinese feel about the world will also figure. “The upshot is that it may take another two to three years for China's outbound tourism to fully recover to pre-pandemic levels,” and it “is unlikely to return to the pre-COVID trend,” the Nomura analysts wrote.
A catchy and disparaging prefix to China's rebound hasn't yet caught on. Remember the way the expansion after the US subprime fiasco was initially derided as the “jobless recovery?” Similarly unflattering modifiers were attached to the pickup that followed a slowdown in the early 1990s. Both cycles ended up lauded in history books for their resilience and, ultimately, employment-generating ability. It's possible to be too downbeat on China. There are considerable benefits to the country from a domestic recovery. The old idea that China is where all the growth and action is does seem less compelling than during upswings past.
When we hear people talk about China’s economy, we might now be entitled to ask: which one?
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Views are personal and do not represent the stand of this publication.
Credit: Bloomberg
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