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Dragon Economy - Unable to Fly ?

Seven months have passed since China announced reopening from covid restrictions. And since then not even a small positive indication of a recovery has been witnessed. With many focused on the financial difficulties of real estate companies, it is interesting to see that forex reserves are still below December 2021 levels. Even the trade balance has fallen in the last three months.

Given that energy and food prices throughout the world are rising, sending inflation fears into the next round of worry. China is facing a flat CPI with a negative PPI. The problem with this can be slower discretionary spending and higher inventories. This is despite bank deposits rising by RMB 24 trillion since January.

All these trends point towards a change in behaviour of the consumption pattern and if this goes on for longer then it might change the structure of the economy.

The government and central banks are introducing measures to provide an indirect push to growth but given such a diversified set of issues any recovery would be slow.

The important question remains will the slowdown in China result in a global slowdown as various reports are already showing a drop or slower export orders?


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