Slowdown is real, but no time to panic

As US media outlets continue to heap public pressure on Hong Kong and China over the street protests, more worrying news about the state of the Chinese economy is piling up, too. The Wall Street Journal has an article today questioning whether official statistics are telling the true picture of the country’s economic health, based on research taken from other public sources. Bloomberg, meanwhile, has a report highlighting the sharp fall in outbound tourism from China to southeast Asia. And the SCMP goes into our backyard to look at how consumers are holding up, finding that many are fearful.

The WSJ report (paywall) is like something out of an intelligence briefing, reviewing claims by independent researchers using satellite images, Baidu searches and other means to debunk official claims of +6% economic growth rates. Many of these claim to show the Chinese economy is already in recession. Without detailed evidence, this is hard to rebut. What we can say is that we don’t see evidence of Guangdong authorities wanting to hide painful realities: official Q2 data for GDP in Zhongshan (+0.9%), Jiangmen (+4.0%) and Huizhou (4.5%) show local economies clearly struggling. Zhongshan’s fixed-asset investment growth rate fell -22% YoY in June, while the others are in single digits. That is what we call warts-and-all reporting from the Statistics Bureau.

Bloomberg reports on a more easily viewed phenomenon: falling numbers of Chinese tourists on beaches and in shopping malls throughout southeast Asian destinations such as Thailand and Indonesia. In some cases, there are places like Bali that have shot themselves in the foot by not fixing traffic problems, while places like Malaysia have kept Chinese tourism numbers going. But overall, it seems pretty clear that the boom days of Chinese outbound tourism are over. At least for now. This is for three easily identified reasons:  the slowing mainland economy, the depreciating Renminbi, and the US-China trade war.

Closer to home, mainland tourists visiting the two SARs are also pulling in their horns. Hong Kong may be getting hammered by disappearing Chinese visitors for a unique reason (see the -40% drop in visitation we reported yesterday), but even Macau is not looking golden. While August numbers have yet to be released, +16% YoY growth in July was a slowdown from the +20% YoY growth of the first six months. Gaming revenues are softening, too, down a sharper-than-expected -8.6% YoY in August. Alvin Chau, boss of Suncity group, which apparently controls more than half of the city’s VIP market, has predicted the rest of the year is going to be tough.

The SCMP report is timely, therefore, in trying to assess what is ailing the 80 million-strong consumer market in the GBA. Although it is hardly a scientific exercise, built on anecdotes, it is plausible nevertheless, full of interviews with typical middle-class consumers. The picture seems to be: a falling Renminbi, rising pork prices, and stagnating property markets are making the average Zhou want to get their savings out of the country, ASAP.

Having said that, however, it should be borne in mind that such stories are typical fodder for media outlets. Nothing sells like fear. 

The country’s leadership certainly do not appear to be trying to brush stuff under the carpet. President Xi Jinping has been warning cadres in public for months now that there is a serious struggle ahead, and serious belt-tightening will be needed. The PBOC’s decision to cut the RRR last week shows the central government recognizes the need for stimulus. Media don’t need to ring any alarm bells; that rope has been well-tugged already.

Moreover, it’s important to remember that, despite what is going on in Hong Kong at the moment, the region has a lot of unique strengths, and these strengths have not yet had time to manifest properly. The GBA is still in the early stages of a 15-year plan. 

Looking beyond the alarmist headlines, resilience is evident. Hong Kong has not yet “fallen” – in fact, as SCMP columnist Nicholas Spiro points out, the recent downgrade of Hong Kong’s credit rating by Fitch has been largely shrugged off by the market. Macau may be slowing, but the opening of the Hengqin Railway Station in November is going to shift attention back to Macau+Hengqin’s potential to become the “Vegas+Orlando” of Asia. And retail sales in Guangdong are recovering, while the loss of manufacturing is being offset by growth in services thanks to the twin drivers of finance and technology. (Read our overview for more.)

To reiterate, then, it is looking increasingly like the country’s recent economic boom is slowing more sharply than policymakers would like, but it is not time to panic. Industrial upgrading programs are creating new growth industries, infrastructure projects are boosting investment levels, and regional governments are working on detailed blueprints to open their economies wider to foreign investment. There are opportunities amid the slowdown. Investors just need to be looking more carefully.

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