Taps Coogan – December 29th, 2020

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Leland Miller, CEO of China Beige Book International and one of the best informed observers of China’s economy has once again gone on record saying that official Chinese data is exaggerating the economy recovery this year. While China is officially claiming that GDP growth is positive year-over-year, which is to say that the Chinese economy has completely recovered from the ongoing Covid pandemic and then some, Mr. Miller meticulously deconstructs that narrative based on the results of his extensive private economic surveys.

Mr. Miller on the difference between what he sees and official data:

“Where we break from official data is the intensity of the recovery. We are seeing a recovering economy. We are seeing an economy that’s recovered better than just about anywhere in the world, but from a year-over-year standpoint, we are still seeing them not up to 2019’s level yet… We are not seeing these sky-high levels of year-over-year growth that Beijing is preparing to announce. It’s a major difference…”

On the mystery between China’s surging exports and stagnant imports:

“Well, that’s the real mystery here. If this is the world’s strongest major recovery, why are they not importing more from all these countries around the world that badly need to export to it. That’s been the real question… When you look at where the demand is, we are actually seeing very modest demand domestically… If you were seeing this being a true recovery, you’d be seeing more robust domestic demand. You’re not seeing that in our orders data. Your not seeing that in our demand data…”

On surging commodity prices:

“What’s happening right now is a situation that looks a lot more like 2016 where the fundamentals diverged from skyrocketing commodities prices. Where you are seeing that in particular is copper firms and steel firms who are doing worse than the third quarter. They are reporting falling sales, falling income. Their margins are collapsing… Inputs are getting more and more expensive… but you are also seeing a situation where speculators are driving up the prices of these commodities and it’s not reflecting actual demand. The problem with this is you get a situation like early 2016 in which people see this and think underlying stimulus is stronger, underlying growth is stronger… we don’t understand that these are not fundamentals driving the commodity markets at this point…”

On China’s tightening financing conditions:

“(Signs of tightening) are just jumping out of the data in certain parts of the economy… When you look at retail credit data, the loan rejections are the highest numbers we’ve ever seen. It was very difficult for a retailer to get credit in China this quarter. A similar type of dynamic is with SMEs (small and medium sized businesses)…”

On China’s ‘consumer driven’ recovery:

“This has been an overblown story basically for years. But even when you talk about the current recovery… our services data was great this quarter… but if you break open services, you’re looking at the business side of services driving that growth. You’re talking about telecoms and IT, and shipping, and financial services. If you look at the consumer side of this… those sub-sectors are doing much much weaker. It’s a mistake to look at our data, PMI data, and see a high services number and equate that to a return of the Chinese consumer. We’re not seeing that…”

On China’s claim of low inflation:

“If you look what’s happening in official data, they are claiming this booming recovery and yet you’ve got all this talk about the possibility of deflation risk. We’re actually seeing a much healthier inflation atmosphere (as in higher inflation)…”

Despite all of these points, China is going to claim in a few weeks that its economy grew almost as fast this year as it did last year. Even though that claim is patronizingly ridiculous, expect it to get paraded around as more evidence of China’s inexorable rise…

There is more to the interview, so enjoy it above.

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