China's economic deflation, demand cooling, Hong Kong stock market falling, Japan rising
Chinese real estate developer Longpo Group fell 6.8% and Chinese delivery company Meituan fell 7% on the Hong Kong stock market due to signs of deflation in the Chinese economy and declining productivity of aging workers.
While the U.S. stock market has been flat so far this year, the Japanese stock market is soaring by more than 6%.
The New York Times announced on the 17th that economists are pointing out the possibility of deflation in the Chinese economy this year due to continued falling prices and the “bankruptcy of highly indebted households and businesses” caused by a secular recession.
Regarding China's export-led economic system, economists say that although it is trying to support the export-supported economy again during this year's economic difficulties, exports are expected to stagnate due to clashes with the West, which is already trying to encourage green technology through climate policies, and the decline in domestic demand is expected to grow further. did.
The stock price of Hong Kong, the main exchange for large Chinese companies, fell 3.7% on the 17th, reducing its market value by one-tenth since the beginning of this year.
Shares of Chinese financial stocks in the Shanghai stock market fell 2.1% on this day, extending the decline this year to about 5%.
China's economic growth rate last year was 5.2%, but according to the population statistics released by the National Bureau of Statistics on the 17th, the total population decreased by 2 million to 1,409.67 million as of the end of 2023.
China announced on this day that 9.02 million babies were born in 2023, a decrease of more than 500,000 from 9.56 million in 2022, marking the 7th consecutive year of decline.
From 11.1 million deaths in a single year in 2023, China now has a larger elderly population than anywhere else in the world, a figure that has risen rapidly.
Capital Economics' report today diagnosed that "the recovery is still unstable" despite the recent slight improvement in the Chinese economy.
In a speech at the World Economic Forum (WEF) on the 16th, Chinese Premier Li Chang said, “We have maintained our stance of avoiding large-scale stimulus measures,” and “We have not pursued short-term growth at the expense of accumulating long-term risks.”
The New York Times announced on the 18th, “Last month, credit rating agency Moody’s issued a negative outlook on the Chinese government’s financial soundness.”
DBRS Morningstar in the U.S. previously downgraded its credit rating for Chinese government bonds in November last year.
“The total debt of the Chinese economy currently exceeds three years’ worth of economic output, which is higher than that of developed countries such as the United States,” said Rohini Malkani, senior vice president of government debt at DBRS Morningstar, based in Chicago. "Over the past year, the country's production has more than doubled, even though it is growing rapidly," he told the NYT.
“The Chinese government’s willingness to stimulate the economy through infrastructure borrowing and spending is decreasing,” said Zhang Jun, dean of the Department of Economics at Fudan University in Shanghai, in a newsletter commentary. “There is a growing sense that a slowdown in growth is inevitable.”
A large rebound in the Chinese economy was predicted in 2023, but after the strong rebound, housing prices fell due to increased spending, and most households lost their sense of stability due to the financial crisis.
Many economists point out that the decline in housing prices is due to household instability and the subsequent weakening of the social safety net.
The biggest concern about the Chinese economy is the concern about the collapse of the Chinese housing market, which has continued over the past two years.
The New York Times said existing homes in China are already selling for about a fifth less than their peak in the summer of 2021, when transactions have slowed to find buyers.
“The long-term decline in construction activity is far from over, but a sharp decline in activity is unlikely, but there is a risk that house prices will fall further and household confidence will deteriorate further,” Tao Wang, chief China economist at UBS Bank in Switzerland, told the NYT.
In China, state-owned banks are controlling lending to real estate developers and home buyers, leading to a surge in lending to industrial companies to build factories.
On the 17th, the Chinese government unveiled a manufacturing-focused stimulus plan, saying that while manufacturing investment increased by 6.5% last year, real estate development decreased by 9.6%.
Increased factory output in China is sold overseas for export, with a trade surplus for manufactured products at around 10% of production. Last year, the strong dollar benefited from the weakening Chinese currency.
Although China's economy grew 5.2% last year, the National Bureau of Statistics announced on the 17th that output growth for the last three months of the fourth quarter was 4.1% annually, showing signs of slowing.
NYT said, “In the long term, China’s growth is slowing, and high debt and a housing crisis that has undermined trust, combined with a shrinking working population and rapid aging, are putting a strain on production.” Western economists predict that China’s growth rate will be below 4.5% this year. “I did it,” he said.
Economists interpreted the predicted decline in growth from 5.2% to 4.5% as “a secular recession, the result of a sharp decline that could last for several years,” unlike a recession cycle in the economic cycle.
Economists point out that China's continuous long-term recession is causing a gradual decline in prices to levels not experienced since the shock of the global financial crisis in 2009, and that deflation is caused by 'indebted households and corporate bankruptcies' that already have huge debts. NYT revealed.
Nobel laureate Professor Paul Krugman (City University of New York) said of the Chinese economy, “By encouraging a huge real estate bubble, the government was able to cover up the problem of insufficient consumer spending for years, and by international standards, the bubble eventually burst.” Observers say China should abandon its financial control policies and reduce unsustainable investment spending by allowing more of the economy's income to flow to households and strengthening its social safety net so that consumers do not need to hoard cash.
On the 18th in the NYT, he wrote an article entitled ‘The Chinese Economy is in Serious Difficulty’, saying, “The current Chinese economy is reminiscent of Japan after the burst of the bubble in the 1980s,” and “Through Japan’s policy of maintaining the working age and increasing real GDP per adult, “Avoiding mass unemployment in the event of a bubble burst and maintaining social and political solidarity through proper management of downshifts.”
Regarding China, he diagnosed that under the current ‘strong state-owned enterprise system with financial preferential treatment’, the working-age population continues to decline from its peak around 2010 and overall productivity stagnation is adding to the difficulties despite the increase in technological capabilities in some fields.