China’s export shock masks an economy in crisis 

Xi Jinping might have burnished Brand China’s image during his May diplomatic merry-go-round. But there is something rotten in the court of Beijing, despite whirlwind summits with American President Donald Trump and Russian autocrat Vladimir Putin.

Last week’s economic data for April continued to illustrate critical cracks in Xi’s export-first model. Even the stench of stagnation and structural weakness must have wafted through the Great Hall of the People amid those lavish banquets.

The writing has been on the wall for some time. “It is now abundantly clear that [China] will not be able to escape the [economic] pain,” He Wei, an economist at Gavekal Dragonomics, told Dow Jones, as reported by Morningstar, the research group.

Crunching the numbers:

• Industrial output increased only 4.1% year-on-year, down from 5.7% in March.
• At the same time, retail sales grew by just 0.2%, a contraction when adjusted for inflation.

Delve deeper: “Growth is driven primarily by government investment, the economic returns from which are often secondary,” China Business Spotlight revealed in April, highlighting Beijing’s manufacturing model based on hidden debt.

Official calm belies a war battering small factories.

BLOOMBERG NEWS

Bottom line: “In reality, [the economy] is, at best, stagnating and, at worst, shrinking. Using this mechanism, [Beijing] can achieve any desired growth target and thus maintain the illusion that masks real economic decline for the population,” the Substack site said.

Big picture: These smoke-and-mirrors tactics fail to address slowing growth and rising unemployment. They also fail to mask mass closures of small- and medium-sized businesses, as well as local governments weighed down by trillions of dollars of debt.

Why it matters: “Official calm belies a war battering small factories,” Bloomberg News reported, as cost-cutting to boost China’s export machine drove businesses to the wall.

China Factor comment: The lingering legacy of the “biggest property crash in history” has “destroyed US$18 trillion” in household wealth, according to research firm ICIS. Shrinking spending at home has only sparked a China export shock abroad.