China's Economic Recovery: Is It as Dire as Media Portrays?

We are not short of China-bashing headlines from the media. The most recent one suggests that China's economic recovery is sluggish.

China reported a 6.3% growth in the second quarter and is that really slow?

Let's compare between the world's two largest economies to assess whether China is truly as unfavorable as it is often portrayed when compared to the US.

Here's a table of figures:

Undoubtedly, the United States has a larger economy, with a GDP value exceeding China's by $7.5 trillion. However, China is still experiencing faster growth. In the first quarter, the US grew by 2% compared to China's growth of 4.5%, and in the second quarter, China's growth reached 6.3%.

Despite the slower growth in the US, there is relatively little criticism of its economic performance. However, China, despite its faster pace of growth, is frequently characterized as having a sluggish economy. If we assume that the US continues to grow at a rate of 2% per year while China maintains a 5% growth rate, China's GDP would surpass that of the US by 2035. It is important to consider the possibility that China's growth may slow down even further, which could potentially delay the point of overtaking. Nevertheless, it remains evident that China is still experiencing faster growth overall.

China has zero inflation, whereas the US has managed to bring its inflation rate below 3%. Having some inflation is arguably better, as China certainly does not want to experience the deflationary decades that Japan went through.

Regarding the jobless rate, the US has fared better with a rate of 3.6%, while China's jobless rate stands at 5%. Although it is not excessively high, the media tends to focus on the elevated jobless rate among the youth, creating a sense of alarm that may be unwarranted when the overall jobless rate remain acceptable.

China continues to maintain a trade surplus against the US. Despite the talks of a trade war, it is worth noting that the US and China experienced record trade in 2022, reaching the highest level ever. This contradicts the media's emphasis on negative aspects.

As for debt, the US has a debt-to-GDP ratio of 129%, while China's ratio is 76.9%. Once again, the media tends to highlight China's excessive local government debt, which, in reality, is not as significant as the debt situation in the US.

Lastly, while housing prices in the US are still climbing, they have remained relatively stable in China. It is a positive development that China's property prices have ceased to rise, as they had become unaffordable for the masses. The property situation in China has stabilized. On the other hand, the US commercial real estate valuations continue to fall.

There's a well-known saying that goes,

It is of utmost importance to exercise caution when consuming information, especially when it comes to Western sources covering China. There is often a vested interest in portraying China in a negative light. On the other hand, Chinese media may have a tendency to be overly positive. The truth typically lies somewhere in the middle, and it is essential to approach the information with critical thinking and discernment.

Our interpretation of the situation revolves around the issue of expectations. Initially, investors anticipated a recession in the US, but it did not materialize. Instead, the first quarter still witnessed a growth rate of 2%. This unexpected outcome pleasantly surprised the market, leading to a rally. Moreover, inflation subsided, and the pace of interest rate hikes slowed.

On the other hand, concerning China, many economists had predicted significantly higher growth rates, reaching 7% or even beyond. However, the actual growth rates fell short of these projections, sparking discussions about China's slowing economy. It is important to note that China's growth has not necessarily slowed down, but rather the expectations set by economists were excessively optimistic. In this context, the Chinese government's target of 5% growth appears to be more realistic.

Consequently, it is the disparity in expectations that has contributed to the negative narrative surrounding China's economic performance.

However, it is crucial to acknowledge the significance of narratives as they have a profound impact on investor sentiment. Currently, the majority of fund flows are still controlled by the West, and Western media largely dictates the narrative. This prevailing negativity has prompted investors to divest from China and redirect their investments to other countries such as the US, Europe, India, and Japan.

It is important to recognize that China's actual issues are not as dire as portrayed by the media. Nonetheless, if the narrative surrounding China does not improve, mere facts and figures alone will not be sufficient to sway investors to consider investing in China. China stock investors must learn to filter out the noise, concentrate on the fundamentals, and maintain faith in their investments in order to stay committed for the long term.