China’s economy is revving up as the entirety of the Western World — from Australia to the United States — is either bracing for a ‘dark winter’ or dealing with small business closures by the thousands.
Earlier this month, Dr. Anthony Fauci said SARS 2 death rates could easily surpass 400,000 by March.
According to Yelp, an online review forum for businesses, some 60% of the 163,735 businesses that are on Yelp have closed since March. Nearly 97,9oo of them said they were going out of business, according to a Yelp report in September.
Other data points about the pandemic’s impact on American businesses are more sanguine.
A study by researchers at the University of Illinois, Harvard Business School and the University of Chicago suggests that only 2% of small businesses are gone, though that was conducted in May.
The U.S. stock market may have been humming along on the hopes that the pandemic was winding down, and Congress would dump trillions of stimulus into the economy. But now the ‘dark winter’ narrative is starting to play out. Barring a bazooka stimulus in the U.S. and Europe that is designed to keep small businesses alive and laid off workers financially sound, it is hard not to view China as the winner in the pandemic.
As most of the Western World has taken to rumors of lockdowns, deaths, and even greater panic attacks to come, China — whose citizens are already under the control of its government — is able to itself to Wall Street as the place to be.
About two weeks ago, Ray Dalio said that if the U.S. and Europe are going to be cowering for the next six months until there’s a cure or 60% of their populations are vaccinated with a new drug, then capital is just going to flow where there’s growth and some semblance of predictability. And that’s China.
“It’s called state capitalism, but they’ll produce more billionaires than the U.S.,” Dalio said. “I think capitalism and the development of the capital markets could, in a few years, be more embraced in China than they are in the U.S.”
In other words, top down management of the economy by unelected officials steering money towards favorite sectors — in China’s case, semiconductors, all forms of green tech, and pharmaceuticals — and protectionism.
Here’s how China’s economy.
- Industrial profit growth surged to 28.2% annualized in October from 10.1% in September, with the year-to-date growth turning positive at 0.7% in October, up from -2.4% YTD in September and -3.3% in all of 2019. The surge is thanks to manufacturing growth and a boost from investment.
- The higher YTD profit growth in October versus 2019 was broadly based across different businesses, with profit growth at state-owned, private and foreign enterprises contracting less to -7.5% annualized at the SOEs, 1.1% for private China companies and 3.5% for the big multinationals that rely on China for cheap labor, low taxes, and weak environmental regulations. Those numbers are an improvement from the -14.3% (SOE), -0.5% (PVT) and 2.6% (MNC) in September. The biggest gains are autos (up 6.6% from -15.9% in September), ferrous metals (-12.9% from -37.6%), and computer & communication equipment manufacturing (12.6% from 3.1%).
“China’s economic recovery remains largely on track,” says Ting Lu, chief China economist for Nomura in Hong Kong. Nomura is sticking with their GDP growth forecast of 5.7% in China for this quarter, up from 4.9% in the third.
Shanghai, which has gone almost completely unscathed by the SARS 2 pandemic so far, is reportedly testing millions of people and closing schools, the AP reported last week. The South China Morning Post and Shanghai Daily have no reports of any lockdown restrictions taking place as of Friday. Currently, 62 people in a city of 24 million are hospitalized with the SARS 2 coronavirus, according to the Chinese government.
Whether those numbers are true or not, Nomura thinks their economy is realistically sailing forward on an even keel and will be doing so in the months ahead.
“We firmly believe Beijing will maintain its policy stance,” Lu said about monetary policy and — like Dalio highlighted — its state directed capital as outlined in its most recent Five Year Plan.
The X-Trackers China CSI-300 ETF, best known by its ticker “ASHR”, is up 1.4% on Friday, beating the S&P 500, which is up 0.4%.