Bulletin No 51 octobre 2024 At the end of September, the Chinese monetary authorities announced a series of monetary policy easing measures which delighted the local stock markets and even caused a rise in the Paris share price of… LVMH.
These decisions are part of the government's desire to achieve growth of close to 5% by the end of the year, a guarantee of sufficient economic activity to maintain the major internal economic and social balances.
For the moment, and the latest announcements expected but ultimately not made on October 8 confirm this, the authorities are using the only monetary weapon by reducing the key rates to give more latitude to lending banks, reduce individual debts and revive the construction sector currently in full slump as evidenced in particular by the setbacks of the developer Evergreen on the verge of bankruptcy.
It is clear that the measures announced will perhaps have sufficient structural effects to reach 5% but will in no way resolve the structural difficulties of the Chinese economy (a few hundred billion released for a GDP of 18,000 billion dollars).
The jobs of the GDP of developed economies are devoted to two-thirds to consumption, in China, consumption represents only 40% of the GDP and in fact growth is driven by investment, a quarter of which is in construction. Hence the effort put towards the attempt to resolve the crisis in this sector in which the "middle +" classes place their savings. There is therefore also a concern on the part of the government to preserve the interests of supporting the part of the population that has benefited the most from the opening of the Chinese economy.
Furthermore, the real estate crisis has led to an internal debt crisis with many players on the verge of bankruptcy (developers, private buyers, local authorities). What protects China from a brutal collapse (like Thailand in the late 1990s) remains the closure of the internal capital market and the two-currency monetary system (one for international trade and one for the domestic market).
International trade remains the spearhead of the Chinese economy. And on this side, the news is not good with the surcharges decided by the United States or the European Union on Chinese products (notably at the moment electric vehicles) and in fact, more generally, the trade war led by the United States. Not to mention that global growth is stagnating...
The Chinese mercantilist development model is probably reaching its limits, especially since the benefits for the Chinese population are, to say the least, mixed: on the one hand, a social class that benefits from this orientation, which invests in the real estate sector and luxury goods made in France (we understand the image), on the other, working classes that pay the high price of Chinese productivity and competitiveness in terms of both income and working conditions. It is certain that a rebalancing in favor of domestic consumption would be welcome to rebalance the Chinese model, which would translate in particular into investments in infrastructure, rather than empty housing as is currently the case, and a more equal sharing of income from work.
But this orientation requires revisions that are undoubtedly heartbreaking for Chinese capitalism, which is attached to a development model that gives it the means to support the imperialist-type confrontation with the United States and its allies.