Seeing as we are near the end of 2023, I am here to revisit my initial expectations from earlier this year. I believe my expectations have largely stood the test of reality and time. In fact, retail sales growth is on trend below my initial expectations and by all means my initial estimates of 5.5% GDP growth was likely an overly optimistic estimate, especially in context of the additional stimulus that the central government unleashed (1trln disaster relief infrastructure spend, 1 trln of refinancing for imminent LGFV debt due, as well as various real estate policy changes etc.).
Having spent 5 months in China and met with over 200 publicly listed companies and engaged with people of all aspects of society ranging from Didi drivers and barbers to those who have had relatives attending the 20th party congress, I believe I am in a position to summarize the takeaways in a way that clearly and accurately reflects the Zeitgeist.
To start, all of the positive things that everyone loves to talk about here - and I will categorize them as 'industrial upgrade' - EVs, medical equipment, aerospace, semiconductor, renewable energy - are largely progressing quite rapidly, and in many places they are ahead of schedule/expectations (as we saw from the HiSilicon Kirin 9000S chip). I won't preach to the converted here and elaborate more other than to say the vast majority of the people outside of China have zero clue there will be a wave of high quality + reasonably priced Chinese manufacture that will compete extremely hard in the RoW.
However, this is about where the good news end.
Confidence/sentiment is Atrocious... While everyone here are gungho about the outlook of the economy, such is not true domestically among vast swaths of the population. In terms of the upper middle income class - real estate/internet/afterschool tutoring/finance/public workers - making up a significant proportion of the 100mln or so global middle class population (I believe the 'passport' class is a good way to describe them) have gotten screwed royally. So they're not interested in spending their money. This is where I was extremely accurate earlier on in the year when I made a bet with
@tphuang re: retail sales growth in 2023. Before someone cites how travel is strong, yes I know, but keep in mind its not sufficient to move the needle on retail sales. Just have a look at JD/Alibaba's results vs. Pinduoduo's results and you should have a good sense of how consumers are downgrading. Another good indicator is the performance of subprime lenders like Qifu360 - these are the people on short term contracts/gig jobs - and they're not doing well. So the upper middle class is quite reticent from spending is leading to underemployment by the lower income folks. Consumption as % of disposable income has fallen significantly in 2022 vs. pre-pandemic.
As such, the majority of the population do not share the overall positive sentiments espoused by those on this forum. Take it for what its worth - you may disagree and think they are all idiots or they are wrong, but you better make sure you understand that this is the feeling of majority of the population.
...and is at risk of turning into a vicious cycle. As a result, the overall negative sentiment is turning into a societal consensus and this is the biggest risk for Japanification at a much lower disposable income level - if the population at large do not share confidence in the future of the State, then you have situations where all the 'elites' want to run. Yes, I've seen the 2021 data showing significant repatriation of technical talent in the West into China - but the clear facts on the ground in China is that 'in Shanghai the best performing businesses in 2023 are those who help with immigration and those who help with kids' overseas education'. This likely is a function of the lack of understanding by domestic 'elites' in terms of the problems facing the RoW - but it doesn't change the fact that this is highly problematic for future of economic development in China if those with money want to leave and do not instead invest domestically. Obviously this is a lot of the '高知' types who thinks WSJ and NYT still are 'better' - and they're idiots for that - but it doesn't change that their behaviour impacts facts on the ground, and disproportionately so given their wealth/'status' and social influence.
Obviously there are substantial capacity by the central government to enact reforms and stimulate the economy to get people to be more confident again, but thus far we've seen small 'dribble' of stimulus that hasn't changed the narrative from the population at large.
Additionally there are risks of mis-management/policy mis-execution (Covid lockdowns in 2022 being the biggest) that lingers in the mind of many entrepreneurs in China.
We are at a point where, if everyone in China was confident, there would be no issues; but if everyone remains negative Nancy, then there will be issues.
My 'tunes' happen to be accurate. Where are these house renovations that you speak of?
