Why China’s booming post-pandemic recovery may not be all it seems | WARC | The Feed

Why China’s booming post-pandemic recovery may not be all it seems

Earlier this month, management consultants Bain & Company reported that “China is driving the recovery thanks to continuous repatriation and acceleration of domestic spending on luxury … The appetite of China and Chinese nationals for luxury remains insatiable.” But this isn’t the whole picture.

But, as a number of economists and observers note, it is the level of demand for raw materials and manufacturing components that will ultimately determine the strength and shape of economic recovery both in China and elsewhere – and this narrative is now threatening to overshadow consumer spending in China.

Why it matters

The key point is that both the US and China – the two biggest economies in the world – are recovering strongly post-pandemic, and their demand for materials is driving up prices of such things as metals, oil, concrete and timber. The rise in prices will affect manufacturing profits on both sides of the Pacific, and elsewhere, hitting everyone from home builders to carmakers, believe economists.

The detail

• One difference for the US economy that could signal strength further down the line is the fact that the home-buying market has held up well. And home buying signals consumption further down the line – of home appliances, furniture and goods and services. The same kind of real estate demand isn’t currently there in China, says Alexis Garatti, head of macroeconomics at credit insurers Euler Hermes. 
• In China, Garratti notes, “we don’t see, for the time being, a very strong acceleration of consumption”. For that Garratti points out, a strong housing market is needed, and Beijing, where prices in real estate have soared due to speculation, is looking for a means to cool the market rather than increase it. And a boom in the luxury market, others point out, does not by itself suggest a consumption-driven recovery.
• Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, points out that China’s huge appetite for raw materials has usually been associated with high investment, and this has led to very high levels of debt.

Key quote

 “The rebound in China’s growth is very much driven by infrastructure investments — not by consumption — and in my opinion, it’s driving imbalances in the Chinese economy” – Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics.

Sourced from Bain & Company, NBC