China’s Economy, Propelled by Its Factories, Grew More Than Expected
China’s big bet on manufacturing helped to counteract its housing slowdown in the first three months of the year, but other countries are worried about a flood of Chinese goods.
By Keith Bradsher and Alexandra Stevenson, The New York Times, April 15, 2024
The Chinese economy grew more than expected in the first three months of the year, new data shows, as China built more factories and exported huge amounts of goods to counter a severe real estate crisis and sluggish spending at home.
To stimulate growth, China, the world’s second-largest economy, turned to a familiar tactic: investing heavily in its manufacturing sector, including a binge of new factories that have helped to propel sales around the world of solar panels, electric cars and other products…
When projected out for the entire year, the first-quarter data indicates that China’s economy was growing at an annual rate of about 6.6 percent…
Chinese companies have been vying to cut export prices and win a bigger share of global markets, even when this means incurring heavy losses…The U.S. government disclosed last week that average prices for imports from China were down 2.6 percent in March from a year earlier… [end quote]
https://www.wsj.com/world/china/chinas-overcapacity-is-already-backfiring-86f29e4a?mod=hp_lead_pos9
China’s Overcapacity Is Already Backfiring
Excess investment in industry isn’t made up by trading partners, and it has domestic consequences
By Nathaniel Taplin, The Wall Street Journal, April 16, 2024
…
Manufacturing capacity utilization plummeted to 73.8% in the first quarter…Particularly interesting is the breakdown of that capacity utilization data itself. Falling run rates were especially obvious in Beijing’s favorite sectors like automobiles and electrical equipment—the so-called “new productive forces,” including electric vehicles, chips and solar panels… [end quote]
Due to China’s large export surplus the government has a lot of money to invest. Over the past decade they over-invested in real estate. Currently, they seem to be over-investing in manufacturing.
China’s rulers are motivated by national stability rather than profits. The youth unemployment rate is around 25%. The leadership is willing to sacrifice profits to keep factories running and people employed.
Chinese low-cost imports will undercut domestic manufacturers. Congress has already appropriated support for U.S. chip manufacturers for national security reasons. But will they continue? And how about other products?
Low-cost imports reduce inflation for U.S. consumers but prompt manufacturers to ask for protectionist measures.
China’s manufacturing overcapacity will reduce goods inflation in the U.S. and also reduce jobs in the manufacturing sector. Most of the U.S. economy is services, not manufacturing. Inflation in services is likely to continue regardless of Chinese manufacturing.
If Chinese exports increase significantly they may invest some of the surplus in U.S. Treasury debt. This may cause a decline in Treasury yields as it did in the 2000s. China has significantly reduced its investment in Treasuries between 2022 and 2024 but that could change.
Wendy