Taps Coogan – October 29th, 2021

Enjoy The Sounding Line? Click here to subscribe for free.

There are China bulls and China bears and then there is Leland Miller, the man who runs China Beige Book International, the largest private in-country data-collection network in China. Mr. Miller, among the best informed observers on China’s economy, has long avoided hyperbole in either direction when it comes to China’s economy. Nonetheless, listening to his latest remarks about China aught to raise a few eyebrows as he declare that the pivot to consumption driven growth is simply “not happening.”

 

Some excerpts from Leland Miller:

“If you pick up your average sell side report on the street, you’re going to read this beautiful report about how China is transitioning from an investment economy to a domestic consumption economy… but this has never been happening. We’ve never seen the retail sector be a growth driver in China Beige Book data. If you look at the structural type of changes that Beijing could be making in order to empower consumers, whether it’s strengthening the currency or transferring state assets to households, increasing the social safety net in a very big way, these structural things are not happening. So yes, you’ve seen a fall in investment in the last few years, but you haven’t seen consumption pick up… It’s nowhere near in the data and I think this is the major concern going forward…”

“A lot of people try to translate a lot of these retail sales and manufacturing and other things into proxies for GDP… Consumption is not a driver for two thirds or more of the Chinese economy right now. That’s never applied to China… What you’re seeing is a model that is transitioning away from being investment led but there isn’t a growth driver right now to pick it up. That doesn’t mean they can’t do it… But the problem is the major risk going forward is that as the (Communist) party intentionally deflate the property bubble… what is the growth driver that will really set a floor on growth? Nobody knows yet…”

“The whole world should be recalibrating (Chinese growth expectations) but the people who should be truly panicking are countries that are not diversified and that believe the traditional Chinese story of 8% GDP forever. This was never going to happen… The funny moral of the story is that if China does all the right things, it can engineer the transition to slower healthier growth and it won’t be easy… but they can come out stronger on the other side. The countries that are in real trouble are the ones that are relying on these high levels of Chinese growth… They’re the ones that are going to be shedding the tears…”

There is more to the interview so enjoy it above.