Open a Western business newspaper and one would probably come away thinking that the Chinese economy is doing poorly, or perhaps even on the verge of collapse. While it is true that the country’s economy continues to suffer from structural problems, this perception is not just wrong but risks undermining the credibility of Anglophone publications and the capacity for our policymakers to make rational decisions.
Last week Chinese price data showed mild deflation, a data point out of which the Western financial press made hay. “China’s deflation worsens as economic pressures mount”, read the Financial Times headline. Bloomberg ran with “China’s consumer price drop worsens, fuelling deflation fears”. The mild deflation that is taking place in China does indeed stem from structural problems in the economy — especially the fact that it is overly reliant on investment spending and insufficiently reliant on consumer spending. But, at a certain point, the negative press becomes outright misleading.
Two other data points were released last week which show the Chinese economy growing robustly. The first came from the private sector Caixin Services Purchasing Managers Index survey, which showed stronger than expected growth in the very sector about which bearish commentators have raised concerns.
Interestingly, the private sector surveys of the Chinese services sector show it expanding quicker than the official Chinese government studies which showed a mild contraction in November. Those who accuse the Chinese of inventing economic statistics would do well to explain why government surveys are more conservative than their private sector equivalents. Whatever way one looks at it, the Chinese services sector is now expanding.
Then there is Chinese export data, which showed exports expanding for the first time in seven months. Combined with the service sector data, this shows a broad-based expansion of the Chinese economy. Not a veritable economic boom, it must be stressed, but continuous growth that is consistent with the IMF’s own projections. These show that Beijing will comfortably meet its 5% growth target this year — a projection China bears seem to ignore when they pass judgement on the economy.
There are rumours that China may have advanced in its capacity to produce semiconductors. A specialist hardware website notes how a recent Huawei laptop listing suggests that the Chinese have broken the 5 nanometer chip barrier. If the listing is correct, it suggests that China has advanced even further than the 7 nanometer processor found in the new Huawei Mate 60 smartphone. The phone shocked Western analysts who thought that such technology was beyond the production capacity of the Chinese. It increasingly looks like the American-led chip sanctions are just pressuring China to produce the needed technology domestically, and thereby undermining the competitiveness of incumbent Western players.
The Chinese economy will not grow at the runaway rates it did in the 2000s and 2010s. No one expects this now that the average Chinese person has become wealthier. Indeed, the Chinese government’s own growth targets reflect this new reality. But at a certain point, the obsessive bearishness about China is discrediting. Last year at a conference, Fang Xinghai, vice-chair of the China Securities Regulatory Commission, stated: “I would advise international investors to find out what’s really going on in China and what’s the real intention of our government by themselves. Don’t read too much of the international media.” In response to this, UBS Chairman Colm Kelleher said that he and his colleagues were not reading Western media on the issue.
How long can the financial papers continue to push their bearish China narrative without discrediting themselves? More importantly, who exactly do they think they are helping? Policymakers benefit from being well-informed, and businesspeople who actually engage with China will quickly turn to other news sources, as Kelleher alluded to last year. Critical stories on China may make Westerners who have recently soured on the country feel good. Yet they are nothing but a soporific, and the effects cannot last forever.