Bankrupt promoters, deflation, sluggish growth in retail sales, falling exports and imports, disappointing industrial production… Each new arrival from China raises a little more alarm about the economy of the second world power, a few months after its post-opening reopening. Covid. “The most worrying thing is real estate, points out François Rimeu, strategist of the management company La Française AM. The risk of bankruptcy of the promoter Country Garden is one more episode of the debacle of the sector, after that of Evergrande in particular. And the most surprising thing is that we can’t understand Beijing’s will behind its policy of forced debt reduction. This choice is dangerous for short-term growth.” A new failure would further weaken the economic fabric of construction, causing a drop in prices and weighing on housing starts. However, “the real estate sector represents around 30% of Chinese GDP, directly and indirectly”, underlines Hugo Le Damany, economist at Axa IM. Not to mention the possible repercussions on the health of the actors of “shadow banking”, these private companies which finance the Chinese economy, and which would devote around 10% of their loans to real estate.
The lights are red, it is undeniable, but it remains difficult to take the measure of the situation. Analysts, investors, economists… All harbor a certain frustration in the face of the difficulty of gathering the information necessary for an informed judgement. “For PMI type indicators, the confidence index of purchasing managers in different sectors, two suppliers coexist, one official and public, the other private. We can compare them and it is true that their indices evolve generally in a fairly similar way, recognizes François Rimeu. With regard to foreign trade data, it is possible to cross them with those of the country opposite “to check their consistency. However, in general, “the figures communicated are often false”, insists Jean-Luc Buchalet, president of Pythagore Consult and co-author of China, a ticking time bomb (Eyrolles). We can study their tendency, but impossible to rely on their absolute value.
Xi Jinping angry with numbers
The holes in the racket are getting bigger and bigger. “A recently published study showed that since Xi Jinping came to power, the number of data updated by the National Bureau of Statistics has been divided by three!”, Laments the strategist of La Française AM. The latest example to date is the suspension of the publication of the unemployment rate for young people aged 16 to 24. “According to the last report published, it was around 21%. Many consider that it is underestimated and that it could approach 45% in reality”, indicates Hugo Le Damany. Hiding the youth unemployment rate seems almost anecdotal as the list of shortcomings is long. “The United States, unlike China, publishes PMIs by region, the Beige book [NDLR : le rapport de la Réserve fédérale sur les conditions économiques] is established by district… I could go on for an hour!, compares François Rimeu. Especially since in China, we also lack historical data, while in the United States, the United Kingdom, and even in the euro zone, we have figures over several decades.
This lack of transparency hinders investors but also consumers. “Chinese household confidence is one of the most degraded indicators at the moment and shows a certain skepticism with regard to government policy,” observes Hugo Le Damany. A caution that encourages households to keep their cash, those whose savings had already increased because they could not be spent during the confinements of the health crisis.
For the moment, Beijing has contented itself with measures in the face of this crisis situation. A negligible cut in the key rate was announced at the start of the week. “Everyone expects the state to do something but, for now, it is hiding behind a succession of mini-plans and thinly disguised market interventions to support the renminbi. [NDLR : le nom officiel du yuan] and equity markets. The public authorities take out the megaphone to affirm that they are there but they do not give any details on their projects, nor any figures”, notes the economist of Axa IM.
In this context, the government’s objective of economic growth of around 5% seems difficult to sustain. More and more analysts are revising their forecasts downward. “Xi Jinping is a Marxist in economics, a Leninist in politics and a nationalist abroad”, summarizes Jean-Luc Buchalet. An explosive cocktail for the prosperity of a nation.