There was nothing really shocking about China’s monthly economic statistics for October 2018. The Big 3, Industrial Production, Retail Sales, and Fixed Asset Investment, all continue along in the same way. The Chinese economy is not crashing, it may be slowing, but most of all there isn’t any more upside. It’s the last one that is important.
As such, Communist officials are driving toward another mandate, somewhat in a panic, where the goal is not really growth. In a sense, they seem intent on managing the decline as best as they might, realizing it’s not going to get better anytime soon (“L”) but not wanting the downward slope to accelerate too far toward an impossible-to-control scenario (the so-called hard landing).
I’m not sure it’s possible, though at this point what other choice may they have realistically available?
To that end, we have seen in the last few months a restart in State-owned FAI of sorts. It’s not nearly the “stimulus” program that was unleashed in early 2016 with the same intent – to stabilize, if possible, China’s economic decline. Public FAI had been contracting earlier in the year I believe on the premise Economists knew what they were talking about with regard to globally synchronized growth.
In other words, a worldwide upturn could have provided Chinese authorities the chance to remove some of the waste and excesses always associated with this kind of economic behavior. CNY’s “miraculous” rebirth in 2017 along with often sky-high sentiment gave them a modest tailwind to do it.
With CNY now right around 7.0 to the dollar, which is very much a line in the sand (so far), there’s no margin in the monetary system nor the economy. State-owned FAI has rebounded in the last two months just as things got to their worst in currency and money. On an accumulated basis, State-owned FAI has improved from 1.1% (YTD) in August to now 1.8% in October.
