Graph of the Week | Economics
Porking Up the Perfect Recovery
2020 is a year of many firsts, and China was no exception. According to official November CPI and PPI data, China saw consumer deflation for the first time since 2009. In November, consumer prices fell 0.5% year-over-year, joining producer prices, which have been falling since February, in a downslope.
Despite falling consumer prices, the PBOC is unlikely to deviate from its course of steady interest rates. While deflation oftentimes points to weak consumer demand, it’s also subject to swings in supply, which appears to be the case here.
Following a 19-month run-up in pork prices due to a widespread swine disease and other agricultural challenges, pork prices dove by 12.5% in November, particularly due to high imports throughout 2020 and a quicker-than-expected recovery in domestic herds. Pork is the largest single contributor to CPI at 2.5% of the basket’s total weight, and its volatile price swing in November pushed the CPI down by 0.29%.
Bottom Line: On the cusp of Chinese New Year, China’s largest travel holiday, and following November’s three-year high factory activity amid rebounding consumer spending and growing demand for exports, this month’s deflation should be just a minor blip on otherwise strong charts going into 2021.
Economics | Trade
Passing the Baton from 2025 to 2050
Pulling ahead on the track, China’s per-capita income is expected to overtake 56 other countries by 2025, ranking 70th in the world at a GDP per-capita of US$25,307.
In the race for wealth, China has shown that it can run endurance as well as it can sprint. According to the IMF, China’s per-capita GDP roughly doubled from 2000 to 2006, doubling again before 2013, and is expected to double once more by 2024 – an annualized growth rate of 9.1% over the 25-year span.
While China’s approach to the richest one-third of nations has been a long time coming, the relative impact of a pandemic-stricken year on economies around the globe has turbocharged its climb in world rankings. Throughout 2020, the IMF expects only four of the world’s largest economies to increase per-capita GDPs, with Vietnam, Taiwan, and Egypt joining China.
Bottom line: While many regions across the globe aren’t expected to even double incomes over the 25-year study, developing Asian economies will see per-capita GDP rise six-fold in the same period. With ASEAN now taking the top spot as its largest trade partner, China should be well positioned to continue making gains as Beijing rebalances its economic focus towards a region with a swelling slice of the global economic pie.
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Business | Industry
Cold and Alone, the Dark Secret Behind China’s Transformation
Frequent flyers to and from China know that the country has gone through an incredible transformation over the past 20 years. Sleeping city sections that had been left untouched for decades are shaking off the dust of time and, after just a couple of years, shine with the glitz and glamour of 21st century modern high-rises. It’s a chilling effect that can leave areas once called home utterly unrecognizable.
Chinese 101: “Chāiqiān,” better known as State-backed relocation
But all good fairy tales have a tinged underside, and in modern China, that darkness goes by the name of chāiqiān – or the process of demolishing a building and relocating its inhabitants. Tied to the push for urban renewal, chāiqiān has been the spirit driving the country’s transformation, though it frequently comes at the price of displacing low-income inhabitants.
Despite offering compensation to these residents, the sums often lag behind the rising cost of living in bustling cities, where affordable housing decreases by the minute. Unfortunately, locals increasingly find themselves at odds with the officials and companies behind the development projects but have no choice other than to accept the inevitable outcome of chāiqiān.
An agent of strategic change or targeted removal?
Since 2015, China has torn down over 24 million properties. Each building demolished provides the government with a new opportunity to free up land for commercial development, issue a new round of property tax, and bring new money into the neighborhood.
But for tens of millions, the razed buildings are in areas targeted by the municipal government as low-income communities prime for population control campaigns. As the national wage gap grows and workers from across the country flock to China’s economic centers, local officials are increasingly turning to chāiqiān to displace low-skilled migrant populations for earners that take home larger paychecks and contribute more to the local economy.
Bottom line: Though the fight against China’s migrant population is thought to cost the country upwards of US$201 billion in economic loss, local officials are more concerned with the short-term health of their jurisdictions than the long-term bigger picture. Meanwhile, with fewer affordable housing options and weary of constant upheaval, many migrants are left feeling cold and alone with a tough decision ahead.
Industry | Technology
Raking In the Green with Greens
Remember the days of flocking to the store over the guilty pleasures like flour and TP like there was no tomorrow? Well, Chinese entrepreneurs do too. Online grocery shopping has become the bee’s knees in China, with consumers opting to purchase their fresh produce on e-commerce platforms.
While online shopping giants like JD and Alibaba have tasted better-than-expected sales, none have juiced the sweet grocery frenzy quite like Pinduoduo, which bagged US$19.3 billion worth of fresh produce last year. Anticipating the trend, the company launched an app in August called “Maicai,” or “buy groceries,” to cater to consumers’ hunger for fresh produce from the comfort of their homes. TikTok and WeChat have also planted roots in the emerging market, offering farmers and other sellers a livestreaming platform and digital storefront on which to showcase their products.
Bottom line: From full-service self-driving KFC delivery cars to end-to-end online produce sales, the pandemic has inspired creative solutions to bring Chinese consumers access to the products they need – with early innovators left enjoying the fruits of their labor once the dust settles.
Economics | Trade
The RCEP: A Big Deal Unlikely to Resolve Sino-Australian Disputes
At first viewed as an olive branch amidst a spiraling Sino-Australian trade war, the now finalized Regional Comprehensive Economic Partnership is unlikely to ease mounting tensions. The untested dispute settlement mechanisms within the deal and shallow provisions for reducing tariffs bode poorly for Sino-Australian relations and point to no end in sight for 2020’s series of new economic tariffs and sanctions.