The only question is, will Xi Jinping and his advisors be quick and nimble enough to turn the tide and restore confidence in the ailing Dragon?

We are entering the year of the Dragon. The next 12 months are said to be energetic; The year can bring celebrations and grand plans and can even be auspicious for marriage, birth and new beginnings, but it can also be a time of surprises where opportunities can be seized or lost. Natural disturbances can also be expected.

The element that presides over the coming year is Wood which: gives an animal mobility and vitality, a flexible and balanced creative power, and a quality of gentleness. Wooden years are years of transformation,” say astrologers.

What does this mean for the Middle Kingdom?

We won't make any predictions but will look at some facts. The Year of the Dragon will certainly see big surprises and disruptions in the coming year in China and first of all in the economic field.

China's growth

The International Monetary Fund (IMF) recently highlighted that uncertainty surrounding the Chinese economy is high. The organization expects the world's second-largest economy to grow 4.6% this year and slow to 4% in 2025, adding that the current crisis in the real estate sector could further dampen private sector demand and confidence and lead to budgetary tensions.
Last year, China's economy officially grew by 5.2 percent, but the figures coming out of Beijing are mostly exaggerated.

The IMF report also warns that a deeper-than-expected contraction in the housing sector could further weigh on private demand and deteriorate confidence, amplify local government fiscal stress, and lead to disinflationary pressures and adverse macrofinancial feedback loops. IMF staff estimate that in such an unfavorable scenario, which involves a deeper and more prolonged contraction in the real estate sector, GDP in 2025 could be 1.8% lower than the baseline scenario (4%).

The IMF estimates that a drop in exports and lending could put even greater pressures.

Housing is a problem

According to The NikkeiChina is grappling with the consequences of the bursting of its real estate bubble: given the weak sales and inventory build-up in the sector, it will now take more than five years for the country to get rid of its excess inventory .

With housing demand in China likely to decline further due to a shrinking population and rising living standards, the world is bracing for an increase in exports of cheap building materials from the country.

The Tokyo-based publication explains: “Intense competition to reduce prices is underway as the country's real estate market becomes saturated. The level of excess inventory, calculated by subtracting all residential space sold from the total surface area of ​​built housing, reached just under 5 billion square meters at the end of 2023. Assuming that each housing unit has a floor space of 100 square meters and three members of a family, China now has excess space to house 150 million people, or around 50 million households.

Buying gold

Another sign of the weakening economy is that gold purchases have soared 30 percent, mainly due to business anxiety.

In another article, the Nikkei said: “Chinese gold purchases increased 30% in 2023, as the country's central bank bought the commodity to replace its dollar holdings amid tensions with United States and as individual investors sought a safe haven for their assets as the economy stumbled.

He cites data from the World Gold Council’s 2023 Gold Demand Trends report:

Global central banks acquired 1,037 tonnes of gold last year on a net basis, the second largest in data going back to 1950 behind only the 1,082 tonnes for 2022. Net purchases by the People's Bank of China totaled 225 tonnes, the highest since 1977, the first data available for the country.

The article cited geopolitical risks such as Russia's invasion of Ukraine, which increased gold purchases in countries like Poland, which bought 130 tons last year, and Libya , which acquired 30 tonnes.

This perhaps explains why gold bars have become popular even among Chinese individual investors.

Deflation

Quoting the National Bureau of Statistics, Wion News Channel observed that the Consumer Price Index (CPI) saw a decline of 0.8 percent year-on-year, marking the most significant decline since September 2009, following a 0.3 percent decline in December: China faced its most serious deflationary threat since 2009 as consumer prices fell sharply in January, highlighting the continuing challenges facing the world's second-largest economy in its fight for recovery. The news channel added: The persistent deflationary pressure depicted in China's CPI data highlights the urgency for decisive and rapid action by policymakers to prevent deflationary expectations from taking root among consumers.

There is no doubt that the post-Covid recovery has been lackluster.

Foreign companies

On January 24, the German Chamber of Commerce Abroad published a survey according to which 46 percent of German companies active in China believe that their Chinese competitors will become leaders in their respective sectors in the next five years: around 83 percent of German companies surveyed believe that the Chinese economy is in decline, although 64% of them believe that this downward trend will only be a temporary slowdown of 2 to 3 years.

The next day, Lianhe Zaobao, Singapore's largest Chinese-language newspaper said the Germans have seen that the number of German companies withdrawing from or considering abandoning the Chinese market has doubled over the past four years. The survey results, which come as China's economy continues to weaken, highlight the challenges faced by German companies operating in China. The main concerns cited by German companies include increased competition from local Chinese companies, unfair restrictions on market access, economic headwinds and geopolitical risks.

The same Singapore publication commented on the vacancies in Beijing; he observed: Demand for office space in Beijing has fallen as China's economy weakens and companies become more conservative about expansion.

Citing Chinese business publication Caixin.com, he added that Beijing's office vacancy rate hit a 13-year high of 20.4 percent, the first time in recent years that it has exceeded 20 percent: Beijing, coupled with conservative growth strategies and cost-cutting measures adopted by companies facing severe economic difficulties, have combined to dampen demand for office rentals.

The Caixin explained that this trend was driven by companies moving their headquarters out of Beijing, downsizing and renting fewer rental spaces, as well as an overall lack of new demand for replace ceded office spaces.

Do not exceed the United States

In an interview cited by Reuters, Eswar Prasad, professor at Cornell University, highlighted the fact that the Chinese economy faces various fragilities and that the economy of the Middle Kingdom may not overtake that of the United States anytime soon. The likelihood that China's GDP will one day surpass that of the United States is declining, said Eswar Prasad, who served as China official at the IMF.

Asked about his forecast, Prasad said: China faces various fragilities, including undesirable demographics, a collapsing real estate market, deteriorating investor confidence at home and abroad and lack of clarity on a new growth model. Even a growth rate of 4 to 5 percent will be difficult to sustain over the next few years. The likelihood that China's GDP will one day surpass that of the United States is diminishing.

It is a fact that China's stock market has been in a continuous decline since mid-2023, reaching new lows when the Shanghai Composite Index fell below 2,700 points on February 2.

How to relieve frustration?

On February 3, Times Epoch noted an interesting development; Many investors who suffered heavy losses flooded the comments section of the official Weibo account of the US Embassy in China.

With the official propaganda machine controlling the Chinese Internet, they have found a way to express their frustration, with some even imploring the United States to take control of the Chinese stock market.

A Chinese investor commented: We know they are lying, and they know they are lying. They know that we know that they are lying, and we know that they know that we know that they are lying. But they continue to lie. Can you tell me what glorious era this description refers to?

Another post from the US embassy on the third anniversary of the military coup in Myanmar was flooded with messages from Chinese stock investors asking for US help: America, please come and save the hundreds of millions of A-share investors in deep trouble, another wrote Save the poor Chinese stock investors. I love America, while someone said: The official media won't let us speak. I come here to ask for help.

It is certainly not the United States that will save Chinese investors; The only question is, will Xi Jinping and his advisors be quick and nimble enough to turn the tide and restore confidence in the ailing Dragon? We can seriously doubt it.

Courtesy: https://claudearpi.blogspot.com/2024/02/my-article-only-question-is-can-xi.html