Export rebound? Yes, but!

The obvious dynamism of the Chinese society combined with its general optimism have helped the Chinese economy get off to a good start. The real estate sector is recovering quickly, see the article here

April: exports helped by the masks and the postponement of delivery
As for exports, we have to be careful. Chinese customs recorded, for the month of April, a sales growth of 3.5% at an annual rate while economists were expecting a 15% drop after a 6.6% drop in March. These figures in fact hide a different reality. A large number of orders could not be fulfilled earlier due to the closure and halt of production, they could only leave China in April when they should have been delivered in March or February. In addition, the medical sector pulled exports out of the market. For example, the textile sector, which includes the production of masks, is up 5.9%. The precise details of the component of these exports are not given, but it is clear that we should not get carried away. All the products that do not have any relation with the medical sector are in decline. The toy industry shows a decrease of 13.5%, clothing 20.7%, automotive in volume 7.2%, footwear 24.4%, bags and luggage 23.4%, steel 11.7%, plastic products 0.4%.

Exportations chinoises

200 million jobs at risk
The export sector directly or indirectly generates nearly 200 million jobs. Official harmonious figures traditionally give a fairly low unemployment rate, below 6% for the last 4 months. These statistics include only a part of the active population of 800 million people because they ignore the mass of migrant workers. The difficulties of companies show that the crisis has certainly done much more harm. The South China Morning Post quotes Liu Chenjie, an economist, who believes that 205 million workers cannot return to their jobs.

The difficult adjustement of exporting companies
A report in China Newsweekly,中国新闻周刊,in exporting zones, such as Dongguan or Ningbo, show the difficulties of the last 4 months. After negotiating with their foreign customers in January and February about delivery delays, Chinese factories, as the epidemic has been on the rise worldwide, have had to deal with order reductions or even cancellations. They are trying to return to the domestic market, but this is not always the solution. A clothing manufacturer for a major European brand explains that many items do not necessarily correspond to the tastes and expectations of Chinese customers, not to mention the measurements, which can be different. One sector, which employs nearly a quarter of the working population, is therefore at the mercy of the evolution of the pandemic worldwide.
The rebound in exports in April is in fact only “cyclical”, and we will have to look closely at the developments in the various sectors in May. 

13 May 2020

Beijing-Washington: War and Peace

Chinese-American relations have had a hectic week. At first, the harsh tone of the American administration dominated.  Faced with its failure in the fight against Covid 19, the temptation is great to blame China, to put the spotlight on the lack of transparency of the Chinese government. Secretary of State Mike Pompeo cited significant evidence that the virus came from a laboratory in Wuhan. On the other hand, US intelligence said it had no such evidence and White House adviser Anthony Faucy, an epidemiologist, believed the virus was natural.

If the White House ventures down the path of confrontation by asking for financial compensation for the spread of the epidemic, it must weigh the consequences, it could lose all the benefits of trade agreements; Beijing had committed itself to increasing its purchases of American products by 200 billion over 2020 and 2021. A second phase of this agreement is planned. The Chinese government would logically forget the agreement and American companies would suffer the consequences.
In the midst of economic difficulties with unemployment exploding, the loss of Chinese orders would be another thorn in the side. The spectre of an electoral defeat at the end of the year would draw nearer.

Very quickly, American pragmatism apparently regained the upper hand.  Voices from Washington were saying that if the trade agreements were respected, everyone could be satisfied.  The “Business First” clan seemed to be winning. On May 8, Beijing announced that the two sides, after a telephone conversation, expressed their readiness to strengthen their cooperation on macroeconomic and public health issues and to make every effort to create a favorable atmosphere for the implementation of their preliminary economic and trade agreement, with a view to achieving positive results.

Proverbe chinois

The American attitude seems a priori rather disconcerting. But: both sides have an interest in getting along and all the outbursts of voices should not mask the strategy of each clan. The economic journalist Wang Jian, 王剑, describes the American tactics of the last few days using a Chinese proverb: “Until you see the rabbit, don’t let go of the hawk, 不见兔子,不撒鹰”. Until the objective is clear, no concrete action will be taken. In other words, the US administration was groping around, looking for guidance to determine the best direction to take. The unemployment rate, which has soared to 14.7%, has certainly also prompted the US President to return to more concrete considerations and to refocus on trade agreements.

This week seems to be a turning point towards a calmer sky. Trade interests should regain the upper hand. The way to the signing of phase 2 of the agreements is therefore open for the benefit of all.

12 May 2020

China and its tests

With the return to work, in schools and universities, China has had to take great precautions to ensure control of the epidemic and economic recovery. On April 22, the government decided to launch a major testing campaign. On May 8, it authorized 30 types of tests, 19 nucleic acid and 11 blood tests to meet domestic and foreign demands. 

China test coronavirus

The health authorities must constantly adapt to the evolution of the virus, such as the appearance of new phenomena: asymptomatic contagious people, cured patients who become positive again (复阳), Chinese returning to countries carrying the virus.

Screening centres use three types of tests: 
1. A genetic sequencing test. It is highly reliable, but expensive, over 600 USD and the results are slow to come out.
2. A nucleic acid test, relatively reliable even though it can miss positive cases. It is the most widely used type of test, particularly because of its cost, between 10 and 30 USD.
3. Antibody blood test, rapid, allows the detection of infected and cured people. This test is more a contribution to the nucleic test. It does not determine whether the patient tested positive is contagious. It cannot replace the nucleic test.  Cost between 8 and 15 USD.

Screening centres have been multiplied. Wuhan, for example, added 111 new centres to its 211 at the end of April. Beijing increased from 3 to 53. Hospitals have tightened discharge conditions. A CT scan and a stool test must now confirm the patient’s recovery. Customs has also increased the number of laboratories and the number of staff dedicated to controls. Many companies, such as Huawei or the developer Vanke, have their employees tested.

The demand for tests is therefore very high both in and outside China. The Caixin site estimates the foreign demand at 1.2 billion while daily production is 9.02 million tests. It will be difficult to meet this demand for massive testing in China, but at present, the extent of the difficulty cannot yet be quantified. How many tests is China missing?

Article consulted: 新冠检测挑战

7 May 2020

Did China recover?

China’s dynamism at the rendezvous
The explosion of the epidemic has not dampened the dynamism of Chinese society. Despite the drop in international demand, some sectors are booming. Real estate agencies and developers are very busy. Many employees, as in the good old days, are busy on their telephones with their clients until 11pm. The sales data of April came to confirm this impression.

The promoters are in good shape
The research center CRIC, in its latest study, shows that the sales of the 100 most important Chinese promoters in April with 900 billion yuan ( 127 billion dollars) of sales show an increase of 17.2% on March, but above all a growth compared to April 2019. Admittedly, the 0.6% growth is timid, but it comes from afar; the months of January, February and March, respectively, had shown a drop of 12.7%, 37.7% and 17.2% compared to the same months of 2019 (see table below). 

Change in sales of the 100 largest developers in value during the first 4 months of 2020 compared to the same months in 2019:

Real Estate in China

This 0.6% increase and the improved environment suggest that May will be even better. 

Increase in transactions
In terms of the number of transactions, the increase is 43% in March and 5% in April 2019 for the 28 major cities surveyed. The measures taken to facilitate sales procedures and credit easing have had a beneficial influence on transaction volume.

It is certainly still too early to say that China has already recovered. However, it is clear that the real estate is back after an already difficult year and two very slow months.

Find articles on the real estate sector here.
Chinese article consulted: 4月楼市持续回温 百强房企销售额同比年内首次转正

Published May 9, 


Towards lower cost countries
With the rise of wages in China, some producers, both foreign and Chinese, have in recent years moved their factories to countries with more attractive cost prices, mainly in the South-East Asian region. The trade war between the United States and China has also contributed to this migration. The current health crisis highlights the world’s dependence on China for the supply of medical equipment. This trend will continue to grow.


Towards Vietnam
Vietnam has been the big winner in this transformation, not only in the textile sector but also in other sectors with higher added value. The Korean company Samsung, for example, has closed its factories in China and now produces the majority of its telephones in Vietnam while taking other Korean companies with it. As for Apple, it remains loyal to China, where its market is much larger than Samsung.

Although Vietnam still lags behind China, in terms of infrastructure, supply chain networks and sources of raw materials, the country’s progress is fast. 
With a population of 100 million and a surface area of 330,000 km2 (almost the size of Italy), growth has been sustained and has surpassed that of China in recent years. 

GDP growth of both countries in % :


A robust economy
Thanks to a very rapid response and strict measures, the Covid outbreak did not bring the Vietnamese economy to a standstill. Its growth has nevertheless been slowed, with GDP nevertheless posting a 3.8% increase in the first quarter of 2020 compared with a 6.8% decline for its Chinese neighbor. Vietnamese household consumption is driving growth, with a contribution to GDP of around 65%, compared with less than 50% for China.

More advanced democratization
Some articles from China, which analyze the Vietnamese political system, find it quite advanced at the democratic level (compared to China, one must understand). The site “The Observer, 观察者”, in an article, The “Four Horses” of “the advanced democratization of the Vietnamese political system, 越南政治体制 “超前民主化 “中的 “四驾马车” , reminds us that power is less concentrated and more divided between “four horses”: the Secretary General of the Party, the President of the State, the Prime Minister and the President of the National Assembly, who have real power of control and counter-power among themselves. Numerous measures for greater transparency in public life have been introduced.

More fertile ground
Journalist Wang Jian 王剑, in his You Tube show on 2 May, gives four reasons for this advanced democratization compared to China:

  1. The Vietnamese Communist Party did not have a real great leader after the death of Ho Chi Minh in 1969.
  2. The South of Vietnam lived until 1975 in a more democratic system than in the North with a more developed economy. A more fertile ground already existed for democracy when Vietnam opened up in the mid-1980s.
  3. The country did not experience major catastrophes such as the Great Leap Forward or the Cultural Revolution.
  4. The central government has never been as centralized and strong as in China in history.

It is of course a bit early to say that Vietnam will take the title of “World Factory”.  The size of its offer remains small compared to the Chinese giant and its main asset in terms of cost price is not always strong enough to convince some groups to move to Vietnam. A long movement is certainly underway, we won’t talk about a groundswell.

Published on May 9, 2020

Personal bankruptcy : Shenzhen, pilot city

China continues to build its legal arsenal as it develops. In recent years, there have been many advances in the legal treatment of personal bankruptcies. The central government wants to set up a “bankruptcy system personnel,个人破产制度” to create a better environment for economic activity. Several courts have already had to judge cases of personal bankruptcy in China, but specific laws were lacking.
Shenzhen, which has already served as a pilot city, is the first city to test these provisions since April. Hong Kong’s neighbour includes 1.236 million individual entrepreneurs out of 3.298 million registered companies.

Personal Bankruptcy in China

Articles consulted :
The first personal bankruptcy case in China

7 May 2020

To get the economy back : building infrastructure?

During the subprime crisis in 2008, China stemmed the domino effect on its economy with a huge 4 trillion yuan stimulus package, 585 billion dollars focused on infrastructure, and an opening of the credit floodgates, which prevented a collapse and enabled sustained growth. From 14.6% in 2007, growth had fallen to 9.65% in 2008, 9.4% in 2009 and 10.64% in 2010. The world economy, now battered by the Covid 19 epidemic, is more affected than in 2008. China’s GDP fell by 6.8% in the first quarter. Huge infrastructure projects have already been announced or specified.

Infrastructure project in the Yangtze River Delta
The Trend Analysis Office, Zhiguqushi, 智谷趋势, reports on projects in the Yangtze Jiang Delta 长江三角, an area that includes Shanghai, Zhejiang, Jiangsu and Anhui provinces with a total area of 358,000 km2.

Delta du Yangzi Jiang

On 17 April, the Zhejiang authorities announced a 3.6 trillion yuan plan to strengthen provincial transport. There are 10 projects worth 100 billion or more, including infrastructure for a high-speed train along the seaand a ring road system in Hangzhou. 
The Jiangsu province has provided details of its investments. By 2035, it wants to have an additional 5,000 km of track for high-speed rail and 1,700 km for rail transport.
Magnetic levitation technology has been the subject of much debate in recent years. A metro train, since 2004, already exists in Shanghai, from Pudong airport to the heart of the Pudong area over a short distance of 30.5 km at an average speed of 245.5 km/h and a peak speed of 435. During the meeting of April 16, the authorities confirmed the project to build a road between Hangzhou and Shanghai, allowing to link the capital of Zhejiang to Shanghai (160 km) in 20′ against 45′ currently! Everything goes fast in China!

The supporters of a continued Chinese “construction” will face numerous consequences from the health crisis. Will this forced march be enough to turn the tide and regain a sustained rhythm?
The session of the two assemblies, starting on May 21, should give more indications on the measures to support the Chinese economy (see article on the subject).

Article consulted: 史无前例的大竞赛:千亿元磁悬浮高铁背后的新一轮基建狂魔

7 May 2020

Cities are rich in China?

The mad growth of China’s Glorious Thirty has enriched part of the Chinese population. Cities are among the big winners. The urbanization rate in China is approaching 60% of the population. 

Beijing and Shanghai in the lead

A study by the Bank of China shows that the average wealth per household is 3.179 million yuan ( 450,000 USD) in Chinese cities.  Beijing leads these cities, with an average of 8.928 million ahead of Shanghai, 8.067, and the cities of Jiangsu, 5.069. Disparities are wide, of the 30 provinces, regions and municipalities (managed directly by the central government) in the study*, 8 are above average, with Xinjiang province in last place. See table below. 

Household housing wealth in urban areas in millions of yuan :

23Inner Mongolia1,904

Unsurprisingly, China’s eastern facade is the richest, with an average of 4.61 million yuan compared to 1.65 in the northeast, 2.076 in the west and 2.635 in the center.


Real estate above all
Real estate occupies 70% of this heritage. 96% of households are owners, 58.5% own one property, 31% two and 10.5% three. In comparison, the study recalls the data of some Western countries, where the number of owners in the whole country is less important: 

Countries by home ownership rate :

Hong Kong50,4

Owner, yes, but!
Remember that Chinese owners are not owners in a certain sense! A Chinese owner doesn’t have a lifetime title of ownership, but a right of use of 70 years for the residences from the date of authorization of the soil, before construction, and 50 years for most other properties (industrial, commercial).

The largest differences in wealth are explained by the ownership of stores and factories. Owners of business assets have an average wealth of 7.768 million, 3 to 4 times more than those who do not own business assets. 
99.7% of households own financial assets, with an average of 649,000 yuan or 20.4% of average wealth.
56.5% of families have debts. 75.9% of debts come from the purchase of a home.

If this study is interesting, it should be remembered that it concerns only 60% of the population, the urbanized one. The wealth effect comes mainly from real estate market prices. For example, Beijing has an average price per square meter close to 60,000 yuan, or 8,450 USD. For the centre of the capital, the budget has to be increased significantly. Moreover, the surface area is not calculated in the same way. The common areas are included. An apartment of 100 square meter in China may correspond to 88 sq in Europe, or even much less in the large complexes. You can go down to 72. The term “efficient housing rate” is therefore used, 得房率. Thus, the habitable square meter is much more expensive. 

For more information, we will have to wait for a study on the whole of China. With lower sums? Certainly!

* The data on Tibet is not provided!

Articles consulted:
中国城镇居民家庭资产均值逾300万 负债主要是房贷

7 May 2020

Beijing, the high point of the two Assemblies

The dates of the two Assemblies have been set, on 21st and 22nd of May (see article). The high point of this session will be the economy. Journalist Wang Jian, 王剑, based in the United States, on his Youtube channel, sets out 10 questions that both Assemblies cannot avoid, 中国人大政协两会无法回避的十大问题.

Les deux Assemblées

  1. Macroeconomic measures to be taken. Since the economic recovery at the beginning of March, no major measures have been taken to solve the problem of unemployment and the bankruptcy of SMEs.
  2. What is the economic objective? Local governments need clear objectives to start economic policies. At the moment, they have no direction.
  3. How to solve the problem of corporate bankruptcies?
  4. How to solve the problem of urban unemployment? Some municipalities have been pushing workers back to the countryside, but this is not a solution.
  5. What do we do with the financial difficulties of local governments? They need to provide certain services, including medical, health, education and transport services.
  6. Export companies are facing difficulties of exporting, with no guidelines from the government. Their business model does not allow them to turn to the domestic market, otherwise they would have done so long ago.
  7. The problem of foreign relations, particularly with the United States.
  8. The Silk Roads project, which has required large resources. 
  9. What is the foreign policy, what is the strategy?
  10. For the epidemic, how is China going to deal with the responsibility that several countries want it to bear and the financial compensation?

The Chinese government is facing the greatest difficulties since 1989. At the national level, it has to provide solutions to boost the economy and at the foreign level, the United States is the focal point.

4th of May 2020

9 billion yuan of loss on Nymex

On April 21, the expiration of the future contract May recorded a drop in WTI oil in negative territory to -37.63 dollars per barrel. The Bank of China, on January 1rst, 2018, authorized this derivative, named Nymex Trésor,原油宝. With this fall, more than 60,000 Chinese investors found themselves trapped and could not meet the bank’s margin calls, most of whom are novices in the field. According to the Caixin site, the losses are close to 9 billion yuan (USD 1.15 billion). Customers have lost 42 billion yuan in deposits and have to reimburse 52 billion yuan to the banks.

Chute du pétrole

The grumbling turned to the banks who had not warned customers of the risks involved; moreover, most of them did not understand the complexity of this derivative. For the time being, the banks have not yet demanded repayment.

The Banking and Insurance Regulatory Commission,银保监会, is investigating and promises a regulation according to the law. So some will have cope with their losses ?

Articles consulted:

5 May 2020