China’s growth is slowing. Is it “ suffering badly”? Not yet. China’s slowing growth, with a 6.2% Q2 number, the slowest in over 30 years is due primarily to their attempts to reign in the financial system (shadow banking) and the speculation on the property market, rather than the impact from the trade war. Yes, the trade war is having an impact, but not as much as some would think. Still January to August corporate bond defaults back in 2015 were $3 billion. In 2016 and 2017 they were $22 and 25 billion respectfully. In 2018 they jumped to $65 billion and this year they were $105 billion. Q3 growth is expected to come in around 6.0% a new 30+ year low. That is the lower edge of the government declared 6.5-6.0 range. In 2020, we should see it slip below 6.0% and by 2022 we could see it as low as 4.00%. The problem is, the use of stimulus is having less impact and their debt to GDP is now up to 300%. Infrastructure investment from Jan-Aug was only 4% vs 20% two years ago. But the government has relaxed the control on shadow banking once again and the Q2 volume was a record for any quarter. Longer term they have a big demographic problem as they suffer the aftereffects of their one-child policy begun back in 1979. The country has 34 million more men than women and the aging of the country means that 17% of the population is above 60, and by 2050, the percentage will reach 35%. That is 330 million people.
China’s growth is slowing. Is it “ suffering badly”?
