No Sharp Turns From China’s Potential

Most people can be forgiven for suffering the misimpression. Some of it is intentional, as reflation – and those selling it – absolutely require a healthy Chinese contribution to reach their strong global rebound. As we’ve documented over the last decade, it almost doesn’t matter what numbers China’s economy actually puts forward, that system is always “strong.”

The only time it wasn’t was understandable. In the first quarter of last year, the world was told about COVID and the “successful” shutting down of much of the Chinese economy to get this pandemic under control. Doing so necessarily produced a huge contraction during Q1, but then, contrary to the narrative, a rather sluggish rebound from it over the final nine months of 2020.

In last year’s final quarter, according to estimates released by China’s government over the weekend, real GDP increased by 6.5% when compared to the final quarter of 2019. This is being hailed as some kind of phenomenal achievement, especially in the words of the country’s Communist authoritarians who are transparently positioning their advertising in simple contrast to everywhere else around the world. They’re taking a “victory lap” over this:

China’s economy roared back to pre-pandemic growth rates in the fourth quarter of last year as its ­ industrial engines fired up to meet surging demand for exports, pushing the full-year expansion beyond estimates and propelling its global advance…The recovery from the biggest slump on record was engineered by getting Covid-19 under control and deploying fiscal and monetary stimulus to boost investment.

“Roared back”; “fired up”; “surging demand.” Huh?

A growth rate of 6.5% puts the “roaring” Chinese economy on pace with the middle of 2018, back when China’s system was enduring powerful questions about a slump which “unexpectedly” wrecked the last reflationary party before being wrongly assigned to “trade wars” in order to discount and dismiss what actually became a globally synchronized downturn.

This anemic 6.5% follows what had been, by far, the worst economic quarter since the Cultural Revolution and then two more notable only for how noticeably contrary to all “V” expectations.

This isn’t really the main point, however, merely the explanation for how what is will predictably continue to fly under the Western radar. During this “roaring” six point five, Chinese officials, particularly those at the central bank, declared an open “no sharp turns” policy for the year ahead – this year, 2021.

What does “no sharp turns” actually mean? If you believe China’s economy is going gangbusters here, then this sounds terrific; the “stimulus” spigots to remain open for first the Chinese and then the rest of the world into reflationary liftoff sufficient to finally achieve inflationary nirvana. The throttle at full speed.

That’s not actually what the PBOC yes-men had said, though. Chen Yulu, a PBOC Vice Governor, more carefully explained to members of the media just a week ago that “no sharp turns” really means:

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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Gary Anderson 1 month ago Contributor's comment

Compared to the rest of the world, China is booming. It isn't great, but is relatively ok.