China Macro Reporter
1. 'China stimulus tracker: A one-year report card' | Development Bank of Singapore (DBS)

<table class="nl_card" id="19apr0301"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="pdf-container"><iframe src=";embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr></tbody></table><p class="caption"><a href="" target="_blank">open in a new window</a></p></td></tr><tr><td class="nl-post"><p><strong>The Development Bank of Singapore (DBS)</strong>&nbsp;has put together a nifty 6-page summary of China's fiscal and monetary stimulus efforts - along with their impact. And, great charts illustrating the findings.</p><p><strong>Have a look</strong>&nbsp;<a href="" target="_blank">here at the 'China stimulus tracker: A one-year report card.'</a></p><p><strong>Here is</strong>&nbsp;the Bank's summary:</p><ul><li><strong>Worries over</strong>&nbsp;China&rsquo;s economy have intensified since 2H18 due to faltering momentum of external trade and domestic demand.</li><li><strong>A moderate stimulus package</strong>&nbsp;and insistence on deleveraging indicate Beijing&rsquo;s increased tolerance for slower growth.</li><li><strong>Policy supports</strong>&nbsp;from reserve requirement ratio cuts to infrastructure binge are yielding positive results.</li><li><strong>Demand-side indicators</strong>&nbsp;&ndash; retail sales and investment &ndash; are showing signs of stabilization.</li><li><strong>But supply-side gauges</strong>&nbsp;such as production and employment remain subdued.</li></ul></td></tr></tbody></table>

2. 'China is the world’s best consumer story' | McKinsey

<table class="nl_card"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="bg-holder"><a href="" target="_blank"><img src="" alt="chinadebate"></a></td></tr></tbody></table><p class="caption">McKinsey</p><p class="excerpt">'The vast majority of China’s economic growth is driven domestically, and driven by growth in consumption of services, driven by growth in expenditures by consumers.'</p></td></tr><tr><td class="nl-post"><p><strong>'Growth in China’s services industry</strong> quickened in March, an official survey showed on Sunday, offering some respite for a slowing economy,' reports <a href="" target="_blank">Reuters</a>.</p><ul><li><p><strong>'The official non-manufacturing</strong> Purchasing Managers’ Index (PMI) rose to 54.8 in March from 54.3 in February, well above the 50-point mark that separates growth from contraction.' reports <a href="" target="_blank">Reuters</a>.</p></li><li><p>'<strong>The fast-growing services sector</strong> accounts for more than half of China’s economy and has helped buffer the impact of slowing manufacturing.'</p></li><li><strong>'But it softened</strong> late last year amid a cooling property market and faltering consumer demand for products from cars to mobile phones.'</li></ul><p><strong>Let's go</strong> deeper.</p><table class="intable"><tr><td class="intable-border"><h2>'China Brief'</h2><p><strong>McKinsey</strong> has put out its first <a href="" target="_blank">'China Brief,'</a> covering 'The State of the Chinese Economy,' plus a podcast on the same topic with three of top McKinsey China experts (you can listen to the podcast below).</p><p><strong>Of special interest</strong> was the 'China Brief''s '2. The consumer story is still strong, but also changing.' Here are some key points:</p><p><strong>'According to consensus forecasts</strong>, Chinese consumption is expected to grow by about $6 trillion from today through 2030.'</p><ul><li><strong>'This enormous sum</strong> is equivalent to the combined consumption growth expected in the US and Western Europe over the same period, double that of India, and ASEAN economies together'.</li></ul><p><strong>'China’s economic rebalancing</strong> toward consumption and services continued, contributing about 76 percent and 60 percent of GDP growth, respectively.'</p><ul><li><strong>'Growth in retail sales</strong> edged lower to 9.0 percent in 2018 from 10.2 percent in 2017, reflecting weaker auto sales.'</li><li><strong>'Real per capita disposable income</strong> was 6.5 percent in 2018, in line with GDP growth.'</li><li><strong>''And China created</strong> 13.6 million new urban jobs in 2018, exceeding the 11 million target.'</li></ul><p><strong>'Beneath the slowdown</strong> lie changes in the patterns of consumption.'</p><ul><li><strong>'Sharper drops in sales</strong> of individual companies, or even of sales in categories like autos or cosmetics, do not tell the whole story.'</li><li><strong>'Online sales</strong>, for instance, grew at a strong 24 percent.'</li></ul><p><strong>'For the first time in China,'</strong> we also see a new segment of customers trading down.</p><ul><li><strong>'The success of Pinduoduo,</strong> a lower segment discounter appealing to customers explicitly trading down—and which has disrupted China’s e-commerce duopoly (an attacker of the attackers)—indicates a maturing and changing market.'</li></ul><p><strong>'First-tier city consumption</strong> remains very robust, while lower-tier cities soften.'</p><ul><li><strong>'Could this simply</strong> reflect the larger “wealth buffer”, higher real-estate values, and affluence bolstering the confidence of wealthy consumers yet to feel the slowdown already apparent lower down the income scale?'</li><li><strong>'The next</strong> few months will tell.'.</li></ul></td></tr></table><tr><td class="nl-post"><h2><a href="" target="_blank">'McKinsey in China' podcast</a></h2><p><strong>The podcast</strong> featured three top China experts:</p><ul><li><strong>Gordon Orr,</strong> director emeritus of and a senior adviser to McKinsey</li><li><strong>Jonathan Woetzel,</strong> senior partner, McKinsey Shanghai</li><li><strong>Nick Leung,</strong> senior partner, McKinsey Hong Kong</li></ul><iframe src="" height="100px" width="100%" style="width: 1px; min-width: 100%;" frameborder="0" scrolling="no"></iframe><hr><p><em>Here are some of their comments on Chinese consumption:</em></p><h3>⚡Gordon Orr</h3><p><strong>'The vast majority</strong> of China’s economic growth is driven domestically, and driven by growth in consumption of services, driven by growth in expenditures by consumers.'</p><ul><li><strong>Slowdown in the economy</strong>, still, by the way, adding absolute economic growth of something like the size of the Australian economy every year.'</li><li><strong>'But the slowdown</strong> to the current levels is being driven by slower growth in consumer expenditures.'</li></ul><h3>⚡Nick Leung</h3><p><strong>'So the trade dependency</strong> of China on US actual trade, what we have now in the tariff regime, is less than 1 percent of GDP.'</p><ul><li><strong>'So it can’t be</strong> that the threat of 1 percent of GDP is driving consumer sentiment in third-tier cities and forcing people not to buy cars.'</li><li><strong>'It may be a small influencing factor</strong>, but there’s clearly a bigger thing going on here in China.'</li></ul><h3>⚡Gordon Orr</h3><p><strong>'It can be</strong> an influencing factor, as you say.'</p><ul><li><strong>'It’s an input</strong> to consumer confidence.</li><li><strong>'It’s potentially</strong> an input to private-sector investment if companies are holding off on making investment decisions on more manufacturing capacity.'</li></ul><p><strong>'You have to focus</strong> on the aggregate, not the specific.'</p><ul><li><strong>'Yes, there are specific companies</strong> that made an enormous deal about how their sales in China were declining, whether it’s Apple or Jaguar Land Rover, or a host of other companies that have said specifically, “We didn’t hit our global numbers because of China.”'</li><li><strong>'Then there’s the counterpoints</strong> of other companies that have absolutely said, “We’ve exceeded our goals in China, and we’ve been going strong.”'</li></ul><p><strong>'There’s a tendency to amplify</strong> the bad news on specific companies that actually may have made the wrong product choices and made the wrong channel choices and saw the implications of that in China.'</p><ul><li><strong>'Whereas, in aggregate</strong>, consumer spending, while it didn’t rise in double digits last year, still had 8 percent, 9 percent growth in consumption.'</li></ul><h3>⚡Jonathan Woetzel</h3><p><strong>'I think</strong> that Gordon is absolutely right.'</p><ul><li><strong>'And I agree with him</strong> here that in the aggregate, China is still the world’s best consumer story.'</li></ul><p><strong>'What’s changing</strong> a little bit is the nature of that story.''</p><ul><li><strong>'In the early days</strong> this was a very luxury market.'</li><li><strong>'The early sort of growth</strong> in the premium market was truly astounding.'</li><li><strong>'Now it’s becoming</strong> much more of a middle mass market.'</li><li><strong>'As we cross that line</strong> into hundreds of millions of people in the urban middle class moving into their own, it’s a very cost-competitive market now.'</li><li><strong>'They still want the premium,</strong> especially for a global product or a global brand, and there’s so much more competition right now.'</li><li><strong>'I think that’s where</strong> some of the foreign companies might’ve been caught out a little bit, because of the pace, speed, and the catch-up of local competitors, coupled with that increase of mass-market flavor to it'.</li></ul></td></tr></tbody></table>

3. When will China GDP > U.S GDP?: '2030 is not a bad estimate - but so is never.'

<table class="nl_card" id="19apr0303"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="pdf-container"><iframe src=";embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr></tbody></table><p class="caption"><a href="" target="_blank">open in a new window</a></p><p class="excerpt">When will China pass the US in economic size?<br>'The year 2030' is not a bad estimate, but so is “never.”</p></td></tr><tr><td class="nl-post"><p><strong>We often hear</strong> predictions about when China's GDP will surpass the U.S.'s. But one I've hadn't heard was <strong>never</strong>.</p><p><strong>Derek Scissors</strong> of the American Enterprise Institute (AEI) presents this possibility in his well-reasoned <a href="" target="_blank">8-page report here</a>.</p><p><strong>'When will China</strong> pass the US in economic size?,' asks Derek Scissors.</p><ul><li><strong>'“The year 2030”</strong> is not a bad estimate, but so is <strong>“never.”'</strong></li></ul><p><strong>'Claims that China’s economy</strong> is already the world’s largest may be exaggerated by up to 30 percent.'</p><ul><li><strong>'They are also dubious</strong> because purchasing power parity often does not hold.'</li><li><strong>'National wealth</strong> is not well measured, either, but shows the American lead expanding.'</li></ul><p><strong>'The more popular belief</strong> that China is smaller than the US but will catch up soon is similarly unconvincing.'</p><ul><li><strong>'Chinese government statistics</strong> are unreliable, since Beijing publishes sanitized data and many transactions may be close to worthless.'</li><li><strong>'More important</strong>, projections of Chinese growth are sensitive to unjustified optimistic assumptions.'</li><li><strong>'Debt and aging</strong> indicate true Chinese growth is lower than reported, and low growth now <strong>could put off Chinese catch-up indefinitely.'</strong></li></ul><p><strong>Perhaps, "never"</strong> shouldn't be so surprising.</p><ul><li><strong>‘There’s a lot of</strong> wild guesses about the Chinese growth rate, the size of the Chinese GDP,' Michael Pillsbury of the Heritage Foundation told an audience at a recent Council on Foreign Relations event, 'An Inside Look at China' (you can <a href="" target="_blank">watch the event and read the transcript here</a>).</li><li><strong>‘Michael Pettis and Gordon Chang</strong> - very different views ideologically - have estimated the Chinese GDP is half of what the World Bank says: six trillion dollars, not twelve trillion dollars.’</li><li><strong>‘You’ve got people</strong> claiming that China’s growth rate for the last few years is only 1 or 2 percent.’</li><li><strong>‘You’ve even</strong> got people claiming it’s even above what China claims.’</li></ul></td></tr></tbody></table>

4. Xi and Trump Miss Their Chance

<table class="nl_card" id="19apr0304"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="bg-holder"><img src="" alt="CHINADebate"></td></tr></tbody></table><p class="caption">Capitol Hill in 1987</p><p class="excerpt">A successful US-Japan agreement on structural reforms three decades ago could potentially serve as a useful model for the current China-US trade negotiations.</p></td></tr><tr><td class="nl-post"><p><strong>Japan-bashing.</strong> I remember when, in the 1980-1990s, Japan was the target of successive U.S. presidents' ire: unfair trade practices, unfair industrial policies, unfair, unfair, unfair.</p><ul><li><strong>And, even a target</strong> for selling technology to the enemy, the reason why Republican brought out the sledgehammers to finish off a Toshiba boombox.</li></ul><p><strong>I also remember reading</strong>, in 1979, Harvard professor Ezra Vogel's best-seller <em>Japan as Number One</em>, which portended Japan's surpassing the U.S. to become, well, number one.</p><ul><li><strong>And, later in 1982</strong>, there was Michael Crichton's mystery <em>Rising Sun</em> premised on the idea that America was selling its future by permitting the Japanese to invest in Silicon Valley. I could go on.</li></ul><p><strong>China has replaced</strong> Japan as the economic threat to the U.S.</p><ul><li><p><strong>The similarities</strong> between the two situations are there, but I don't buy the the comparison - the underlying factors are just too different.</p></li><li><p><strong>As for trade issues</strong>, though, we can learn some lessons from the long battle with Japan about how to deal with China.</p></li><li><strong>That's why</strong><a href="" target="_blank" rel="nofollow noopener">'Xi and Trump Miss Their Chance'</a> by Jeffrey Frankel of the Harvard Kennedy School of Government is worth a read. He writes:</li></ul><p><strong>'The structural-reform component</strong> of the current US-China negotiations recalls similar talks with Japan three decades ago, which were prompted by congressional anger at the large US trade deficit with that country. '</p><ul><li><strong>'In June 1990,</strong> under the Structural Impediments Initiative (SII), the Japanese government agreed to a detailed set of policy reforms requested by President George H.W. Bush’s administration.'</li></ul><p><strong>'The SII aimed</strong> to correct the bilateral trade deficit with more fundamental and effective measures than tariffs.'</p><ul><li><strong>'Japan, for example,</strong> agreed to tighten enforcement of its competition laws, loosen ties among its keiretsu (industrial groupings), make it easier for large retail chains to open stores, and reduce the bias toward using land for rice farming.'</li><li><strong>'The US, meanwhile,</strong> agreed to domestic reforms intended to increase its household saving rate, reduce the tax bias toward debt-financed home ownership, and strengthen investment in education and training.'</li></ul><p><strong>'These reforms</strong> were designed to reduce the countries’ trade imbalances, especially by narrowing the gap in their national saving rates.'</p><ul><li><strong>'But a noteworthy feature</strong> of SII was that both the US and Japan requested measures that would make the other’s economy more efficient.'</li></ul><p><strong>'As it happened</strong>, the “Japan threat” began to melt away soon after the SII, but not because of US or Japanese trade policy.'</p><ul><li><strong>'Instead,</strong> Japan’s three-year financial bubble burst in 1990, and its economy has never quite recovered since.'</li></ul><p><strong>'Still, SII was a success</strong>, because it led to some modest steps toward mutually beneficial reforms and avoided destructive tariffs and quotas.'</p><ul><li><strong>'In theory,</strong> it could serve as a useful model for the current China-US negotiations, if they were in similarly competent hands.'</li></ul><p><strong>'Unfortunately,</strong> the two countries’ leaders may not have such a firm grasp on economic principles.'</p><ul><li><strong>'Xi appears</strong> to care only about maintaining political control, while Trump seems to care only about himself.' Ouch.</li></ul></td></tr></tbody></table>