China's Growth Conundrum

Facing slow growth at home, will China double down on exports?

China’s economic data came out overnight, and they are concerning. Even more worrisome is the declaration by the National Bureau of Statistics that heads the release:

In April, under the strong leadership of the Central Committee of the Communist Party of China (CPC) with Comrade Xi Jinping at its core, all regions and departments firmly implemented the decisions and arrangements made by the CPC Central Committee and the State Council, adhered to the general principle of pursuing progress while maintaining stability, fully and faithfully applied the new development philosophy on all fronts, accelerated efforts to create a new pattern of development, and ensured early and coordinated effects of macro policies.

As the economic and social activities have fully returned to normal, the year-on-year growth for most production and demand indicators improved, services and consumption witnessed fast recovery, and employment and prices were generally stable. The economy sustained the good momentum for recovery.

National Bureau of Statistics of China 16 May 2023

This language masks the reality of the challenges of reopening an economy with 1.4 billion people. Although it is true that the Zero Covid policy only ended in December, when comparing any figures to the previous year it should be remembered that at that time China’s economy was essentially frozen, so the base is quite low.

While many were expecting a quick rebound, I did not. My reasoning was that the sociological impact of the lockdowns would linger long after regulations were removed. Especially in a country such as China that has experienced devastating wars, famines, earthquakes, floods, and deprivation within living memory, I expected consumers to remain cautious, and we can see this in the April statistics. Per Bloomberg, China’s April retail sales were up 18.4% YoY, below market expectations of 21.9%.