China: In School, No Masks, and a Runaway Stock Market
And on track to record 3% GDP growth this year
Don’t be jealous. But China is winning the coronavirus war.
Okay, you can be angry. At least frustrated.
Their kids are in school. They’re not wearing masks. Waiters in Chengdu…no masks. Gamer fanboys in Shanghai cued in line at last week’s Cartoon and Gaming Expo, masks half on, half off, by the hundreds.
And their economy will grow by more than 3% this year, Barclays Capital estimated on Friday.
China’s economy rebounded to a growth rate of 3.2% annualized in the second quarter, up from the 6.8% contraction in the first. It exceeded the Bloomberg consensus of 2.4%.
China’s numbers are supported by the sustained recovery in demand, both foreign and domestic. Retail sales continue to disappoint, but that’s mostly being dragged down by car sales.
Stimulus is the name of the game. The strong rebound is due in large part to infrastructure spending and new infrastructure project approvals (in May,they were up 11% annualized and in June, up 8%). And rising property investment (up around 9% from May to June) as this is China’s main savings account, considering they are not allowed to invest abroad, and everyone in China knows the Shanghai and Shenzhen stock exchanges are something akin to a Macau casino.
Anyway, China is having a V-shaped recovery and we are not.
China is not having any worrisome outbreaks of the coronavirus. Maybe they are lying. If they are, they seem willing to put their school children in danger.
Their stock market is growing like gang busters.
There is still a surge in new export orders to a 3-month high, thanks to foreigners stocking up on surgical masks and PPE that no one else in the world seems to know how to make.
But, China’s June export data overall showed a broadening of the export recovery from May as the U.S. and Europe tip-toed out of lockdowns, so it wasn’t just product related to the pandemic that China was shipping to world markets.
China’s V-shaped economic recovery continued for a fourth consecutive month in June, led by strong domestic demand. If Covid-19 remains under control, China can remain the world’s best consumer story.
On the 19th anniversary of the publication of “The Coming Collapse of China,” it is worth noting the resilience of the Chinese economy, which has survived the Global Financial Crisis, the Trump tariffs and now the coronavirus, notes perennial China bull Andy Rothman, investment strategist for Matthews Asia.
In 2001, Gordon Chang (Rothman’s nemesis) forecast China’s hard landing. He was not alone. The hard landing guys have been calling for this for at least as long as I have been covering China both from abroad and on the ground, and that’s been since 2011.
China is really starting to aggravate people. If not just for spreading the coronavirus, but for the fact that it is doing better with it than anywhere else (so it seems) and last year they accounted for 40% of global economic growth, larger than the combined contributions to global growth of the U.S., EU and Japan, according to IMF data.
The EU is basically third fiddle. They will chose the Chinese over the U.S. any day of the week. And those trade numbers are why. The second reason might be their disdain for Queens-local Donald Trump, though this is only temporary. Europe will love China long after Trump is gone. Witness their silence on Hong Kong and the Uighur camps in Xinjiang.
Actually, there is supposedly an outbreak of the coronavirus in Xinjiang at the moment.
Though worth noting, the last time China reported an outbreak it was in a region of Beijing and it included maybe 115 people and now it’s not even a headline.
A month ago, Wuhan tested 11 million of its inhabitants for the new SARS coronavirus. Wuhan is the home base of the news SARS diseases, known as CoronaVirus-2019, or Covid-19. Only around 300 people had it. Three hundred out of a population of 11 million who have all come out of hiding. Apparently the virus was still around enough to infect 300 once they came out of their locked apartment dwellings. But not 10.9 million others. That’s amazing.
Then again, the first SARS lasted only 8 months and it died. If it is still alive, we never hear from it, and it certainly doesn’t drive people to drink like this current version.
Love it or hate it, China is rewarding one of its biggest benefactors: Wall Street. One doesn’t have to work for Goldman Sachs GS -0.2% or have a million dollar initial investment to put money to work in China. There are plenty of exchange traded funds out there, from BlackRock BLK -0.2%’s iShares products, to Deutsche Bank’s X-trackers, and the KraneShares niche ETFs like the healthcare one (KURE) and the e-commerce and internet one (KWEB). They’re all up. KWEB is up two times more than Nasdaq NDAQ -0.8%. An investment in KURE has done better for retail investors than Gilead Sciences GILD +0.5%, Pfizer PFE -0.3% and AstraZeneca year-to-date.
Back in April, China’s first quarter macro data was the weakest since the Tang Dynasty. Life didn’t start to return to some semblance of normalcy until the end of March after over six weeks of being totally closed for business.
China’s economy is increasingly driven by domestic demand and tech.
Last year was the eighth consecutive year in which the consumer and services part of China’s GDP was the largest part, beating exports.
Although consumer spending is likely to remain softer than usual until next year as even the Chinese are still at least somewhat afraid of the coronavirus, China is likely to remain the world’s best economy this year…and next year.
Whether Covid-19 data out of China is remotely trustworthy, I leave you with Mr. Rothman from San Francisco’s Matthews Asia:
“I know that some investors wonder whether the Chinese government’s Covid data can be trusted. I think there are two reasons to believe that since January 23rd—when the government shut down the city of Wuhan, where the virus was first identified, and which has a population larger than that of New York City—the Chinese government has not been deliberately falsifying its data. First, if the number of hospitalizations and deaths were significantly higher than the official statistics, we would be hearing about it on social media from the family and friends of those patients.”
Makes sense. And their parents wouldn’t be sending their kids to ballet summer camps and teachers probably wouldn’t be having them hover over each other in a classroom.