TWS: Nov. 15, 2021

Graph of the Week | Economics

A Not-So-Secure Social Security Takes Its Toll

China’s graying geezers are sure causing a ruckus. Beyond issues like labor force stability, China’s aging population is raising alarm over withering domestic social security funds.

The percentage of population over the age of 65 has steadily grown since 2013, reaching a peak increase of 13.5% in 2020. As Chinese society grays and older workers leave the workforce in record numbers, social security needs have been on the rise.

Historically, policymakers have subsidized social security funds to ensure that they don’t dip into deficit; though, in 2020, stimulus measures allowed businesses to pay lower social security contributions. By the end of the year, fund expenditures had exceeded contributions by a difference of CN¥721 billion, or ~US$115 billion.

Bottom line: Beijing has seen the warning signs on the horizon. Policymakers are considering their options to prolong the social security system’s lifespan – and the leading prescription calls for raising the 15-year contribution minimum to qualify for future payments. The workforce will likely also see legal retirement ages rise over the next few years to expand the labor force and reduce the burden of distributions from state pension funds. Soon-to-be retirees surely won’t be happy, but something has to give to prevent a larger-scale breakdown.


Economics | Trade

Global Appetite for Chinese Imports

Manufacturers in China may are facing a number of challenges this season as prices for raw materials rise, but new data shows that strong global demand for Chinese exports are supporting factories:

  • Chinese exports rose 27.1% in October year-over-year, beating economist estimates on robust demand ahead of the holiday season.

Meanwhile:

  • Imports jumped 20.6% year-over-year, up from 17.6% in September and boosted by ramped up coal imports to combat power outages and keep factories open.

The momentum drove China’s trade surplus to jump to US$84.54 billion last month, far exceeding earlier projections of US$65.55 billion:

  • In September, China reported a surplus of USD 66.76 billion.

Pre-emptive buying from businesses abroad helped light a fire under October’s figures:

  • Shipping delays and bottlenecks in global supply chains have brought average end-to-end transit time for China-US ocean freight up to 73 days.

With over a 2-month lead time, European and American retailers are hustling to keep shelves stocked for the holidays.

Bottom line: While the holidays may bolster exports for now, global demand may not be able to sustain the boom. Inflationary pressure, power outages, and weak domestic consumption is beginning to weigh more heavily on producers. Meanwhile, production has begun to slow in recent months, which will carry over into muted exports.


Economics

Terrible Twos: China’s PPI and CPI Hit October Skies

…and as we were saying…

Inflation is still on the rise in China, and for producers, it’s climbing at its fastest rate since you had to flip your phone open.

Last week, China’s National Bureau of Statistics reported producer prices have risen the most during the past 26 years:

  • Producer Price Index (PPI) skyrocketed 13.5% year-over-year in October, its highest year-over-year increase since July of 1995.

These rising raw materials costs are beginning to be passed on to end buyers.

  • China’s Consumer Price Index (CPI) also rose, posting a 1.5% year-over-year increase in October.
  • This is the highest figure since September of last year, accelerated by producer prices trickled down to consumers.

Prices in much of North America and Europe also rose in October, lifted in part from growing Chinese production costs as well as sky-high shipping costs:

  • In the US, retail inflation hit its highest level in three decades in October at 6.2%.
  • In import-heavy Europe, inflation also rose 4.1% to 13-year highs, up from 3.4% in September.

Bottom line: As the world’s factory, when China gets sticker shock, so do other countries. Despite top-notch macroeconomic figures spurred on by the holiday boom, not all is as it may seem. Between rising PPI and CPI, along with low consumption, a systemic debt crunch, and a teetering property sector that accounts for as much as 29% of domestic economic activity, the only thing that we know for certain is that Beijing’s top policymakers remain vigilant.


Industry | Policy

How Financial De-Risking Destabilized China’s $52 Trillion Property Market

Concerns over China’s property market collapse have taken the world by storm. Evergrande just missed another debt payment and may soon be in formal default.

How did we get here? Are our worries justified? Most importantly, will a collapse in China’s real estate sector lead to another financial crisis like the 2008 Great Recession?

We answer all these and more in our latest China Insights article. Read our deep dive into how China’s financial de-risking efforts destabilized its $52 trillion property market here:

Full Article

Further Reading

China Business Newsletter

TWS: Nov. 22, 2021

China Business Newsletter

TWS: Nov. 8, 2021

China Business Newsletter

TWS: Nov. 1, 2021

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