IIt’s not just Taiwan that’s causing problems for the Chinese government. The atmosphere is rather tense at the Ministry of the Economy in Beijing at the start of 2024. With a nagging question: how to revive growth? The answer could well have dire consequences for the entire planet.
The official figure for the growth of gross domestic product for 2023 should be made public during the week of January 15. Unsurprisingly, it should exceed the 5% floor decreed by the government, but not by much. Because for three months, a new bird of ill omen has appeared: deflation.
Figures for December 2023, announced on Friday January 12, showed that consumer prices had fallen by 0.3%. A modest decline, but which comes after a fall of 0.5% in November. Since July 2023, only the month of August has been positive. In addition, ex-factory prices fell even more sharply, by 2.7% in December.
Deflation is a poison just as toxic as inflation, since by fueling the fall in prices, it discourages consumption (it will be cheaper tomorrow), cuts into margins and leads to unemployment and recession.
Bankruptcies
The government is looking for ways to escape the trap. Not believing in recovery through consumption, China favors business investment. Usually, it is real estate and infrastructure that play this role. But no one wants to buy an apartment anymore and developers are going bankrupt one after the other. The latest, the giant financial conglomerate Zhongzhi, which laid down its arms on January 5.
That leaves the industry to maintain growth around the announced target of 5%. The weekly The Economist tells how Chinese state banks massively switched from financing real estate to that of industry. In 2023, capital spending jumped 10% in metallurgy, 18% in automobiles and 34% in electrical equipment. With a predilection for IT-electronics, biopharmaceuticals and green energies.
As a result of this deluge of money, China could, by 2030, exceed 40% of the entire global manufacturing industry with overcapacity which will cause prices to collapse, as is already the case in panels. solar. Good luck, in these conditions, to those who, in the United States as in Europe, dream of returning to the industrial race through “green” industry. Without protectionism with devastating consequences for purchasing power and the climate transition, the bet seems lost in advance.