Beijing is learning fast and is aware of the perils of stoking asset price bubbles to provide a short-term boost to the economy. Consumer debt hit a record 51.1% of GDP in Q1: the authorities have pledged not to use the housing market as a prop this time around.
Officials appear content with more modest aims, namely, ‘managing’ the current economic slowdown. Financial stability is of paramount importance for China, given the political instability plaguing Hong Kong.
Services inflation decelerated sharply from 1.6% to 1.3% in September, the joint weakest reading since the financial crisis of 07/08.
The flipside is of course a rising trade surplus as domestic demand wanes.
China has emerged from the prolonged trade war with the US with enhanced competitiveness vis-à-vis the rest of the world, in particular its ASEAN neighbours and even the EU.
China’s widening trade surplus should help push the current account surplus even higher in H2 this year. Critically, it will also be a useful shield to any acceleration in capital outflows, particularly if China begins to open up its financial services sector.
