The Wall Street media epitomized by Bloomberg News have begun circulating a new “China collapsing” slogan to follow, and perhaps replace, “industrial overcapacity.” It’s an equally false narrative of a “government bond bubble” which the People’s Bank of China is allegedly very worried about.
What is actually happening is that an industrial investment and production and exports boom in China has been accompanied by lowered consumer spending following the fairly orderly deflating by regulators of the real debt bubble—a large one—in the residential property market. The decline in spending has seen a rise in savings, along with rising purchases of Chinese government bonds by Chinese citizens and banks. Flows of household and bank funds into government bonds have, to some extent, replaced previous purchases and/or rentals of new housing, where the bubble has been deflated.
While China’s industrial and technological exports rose sharply in the year to June, imports fell by 2.3%, as this publication reported yesterday, and are down for the year to date. Disposable income per capita in China was up 5.4% for the January-June 2024 period (compared to the same period of 2023); overall GDP growth was 4.8% according to China’s Ministry of Commerce; but retail sales rose only 2% for the whole year ending with June.
