No China to the Rescue This Time

China is battling multiple economic hits at present and looking increasingly like they will not be the rescue remedy for the next recession, one most analysts are predicting will hit globally next year.

China continued lockdowns

With 1/5 of China currently under lockdown and daily protests escalating, is this the most serious threat facing the Chinese economy and possibly the global economy? Coupled with the slowdown of 0.3% of exports in October, an aging population and a sky high youth unemployment rate, is the Chinese ambitious 5.5% official growth target looking a little too rosy….?

China lockdowns and riots

With the Soccer world cup in full swing, Chinese are seeing huge football stadiums with unmasked people from around the world, even as they are locked down for 5 days if just 1 person in your apartment building has covid.  This has led to riots in Shanghai and more recently daily Foxconn riots outside factories, resulting in 20,000 workers being paid to leave. These protests are being triggered by workers trying to escape lockdowns, being forced in dorms with covid workers and just generally poor pay conditions. 

In Beijing, Shanghai and Wuhan today there have been reports of mass demonstrations, with Chinese chanting ‘Xi Jining, step down’.  These protests are said to be in response to a lockdown apartment block catching fire and due to covid rules, the fire brigade being unable to reach it and 10 people dying.  It is very unusual for Chinese to vent their anger in public protests, where criticism of the political party can result in harsh penalties. 

With the rest of the world moving on with ‘living with covid’ China has become hamstrung with low levels of vaccination and low levels of ICU beds meaning opening up could cripple their health system.

Property Bubble and bank loosening

Recent Ainslie news has discussed the Local government debt and property bubbles as significant risks to the possible implosion of the Chinese economy.  In a sign the Chinese government is starting to see possible downside in these issues, on Wednesday night last week state owned banks were told lend more money to the property sector loosening capital requirements by $70 billion and allowing property developers to defer repayments as necessary

Manufacturing slowdown

Additionally with world consumption grinding to a halt in Europe and the US due to high inflation and high interest rates, October saw Chinese exports drop by 0.3%, even with a 60% increase in automotive exports.  US imports were more dramatic than this, dropping 12.6% year on year. The causes were not only demand, but that it is estimated 20% of Chinese manufacturing is currently in lockdown.

During October Chinese gas imports also dropped by 19% potentially indicating a further slowdown.

Shipping container rates are now back to pre-covid rates despite fuel prices still holding up.  Shipping rates have long been held responsible for some of the current inflation rates, with Shanghai-LA rates moving rom $2,500USD to $25,000USD during peak covid driven consumption, with some reported rates now under the $2000USD per container.

Youth unemployment and aging demographic

The urban youth unemployment rate in China is estimated between 18-20% while many are struggling to find work. The ‘lying flat’ movement of China has become viral, with many youths disillusioned with their parent’s relentless work in factories not improving one’s situation in life. With an aging population and less young people available to support this, and youth unemployment and less willingness to work like their parents’ generation , China faces a demographic economic slowdown from both age spectrums. 

China will not be the saviour this time…

With these reductions feeding into worldwide inflation and a faltering Chinese economy, which has consistently helped with global growth, are these the first signs of a real global recession that will have no China to save it?  There have been several international bodies more recently downgrading their growth forecasts, with Nomura now estimating 2.8%, Oxford Economics 4.2% and Barclay’s now estimating 2%.  These are a long way down from the Chinese goal of 5.5%, a goal that helped the world economy recover after the GFC.  In fact with property price collapses, local government debts levels and the immovable covid-0 policy could China in fact drag the rest of the world down further into the inflation driven debt spiral?

Whilst there is almost consensus around a recession in the US and Europe next year, debate still rages on Australia will be drawn into it as well.  China got us through the GFC but it is looking increasingly unlikely they will get us through next year’s global recession.