Taps Coogan – June 27th, 2023

The last time we heard from Leland Miller, the man who runs the largest private in-country data-collection network in China – China Beige Book International, it was the end of the first quarter and he was predicting a strong recovery in China later this year, very much inline with the board market consensus.

Since then the market narrative on China, along with the year-over-year data, has soured considerably and just last week Chinese policy markers had to resort to rate cuts in a bid to stimulate the economy.

Despite all this, Mr. Miller thinks the market is misreading the Chinese data and coming to an overly ‘gloomy’ outlook:

 

Leland Miller: 

“The reason that the markets are so upset about the China recovery right now is that they had absolutely ludicrous expectations that there would be this whiz-bang early year China recovery… One of the things that we’d been yelling from the treetops in December, and January, and February was that you’re not going to get a recovery early on because everyone’s going to be sick with Covid… Now we’re getting to the second quarter and I think the recovery is actually a bit better than markets (think)…”

“If you look at what really knocked people off their feet, it was the May manufacturing PMI. Now, there are some weird data peculiarities. April was really really weak a year ago because of the lockdowns in Shanghai and elsewhere. May was stronger… from April to May you had a different base of comparison so you saw what people thought was a deceleration of growth. There was no deceleration… we’ve shown improvement three straight months in the Chinese economy. There is just a complete misinterpretation of what’s happening right now…”

“If you’re expectations are sky high you’re going to be disappointed in the second quarter, but if you are looking at if things are getting better, the answer is ‘Yes’ …We’re not here to say everything is peachy in the Chinese economy. That’s not us… but there is much too much gloom with regards to what’s happening with the recovery.”

While Mr. Miller may be entirely correct, 2023 is essentially half over and, as Mr. Miller will readily point out, the medium and longer term headwinds facing China are stark. The market may have swung from overestimating China’s short term recovery to underestimating it, but this sense of being ‘disappointed’ by China’s growth is going to be a recurring theme.