David Rosenberg: The Great China slowdown has wider implications than meets the eye

financialpost.com:

China, a.k.a. “the growth engine of the world,” has posted a series of disappointing economic data points over the last few months.

The string of misses on retail sales, purchasing managers index, gross domestic product, exports, industrial production, etc., came in despite a low base being owed to one of the longest-standing COVID-19 restrictions in the world, which was finally lifted last year. Hence, not so surprisingly, all hopes were pinned on “revenge consumer spending,” as was seen everywhere else in the world.

But there have been headwinds: continued slowdown in property prices is making the Chinese consumers feel poorer, and urban youth unemployment — at a whopping high of 21.3 per cent even though overall unemployment remains stable at about 5.2 per cent — is adversely impacting consumption demand amongst the younger cohort.

Though this near-term weakness is prompted by China’s crackdown on the real estate and tech sectors, which has resulted in slower consumption, the country is also faced with a more structural “middle-income trap” as GDP per capita has risen, debt to GDP has almost tripled over the past three decades and the growth rates have come off.

Consequently, we believe the slowdown in the Chinese economy is not merely tactical, but is more complex and has wide-ranging implications than what primarily meets the eye. China’s extraordinary export-led growth has been driven by becoming a low-cost production powerhouse, but drivers for this kind of growth are waning.

Going forward, there are three headwinds that would keep the high growth trajectory capped.

First, the high overall debt-to-GDP ratio (at 297 per cent, it has almost tripled over the past three decades) will keep the government’s capacity for