Seeing the unseen: How to predict China’s economy?

I took this photo last week in Nanjing, a second-tier city of 8.5 million people in China’s eastern Jiangsu Province:

The photo was taken near the Confucius Temple, a famous tourist site in the city. A friend who works in the police department in the city told me “This summer is crazy. Our officers are trying very hard to maintain order facing the constant inflow of tourists. By the way, it is very very hot.” 

The temperature on the day I was there was 29-36 degrees – hotter than most cities in Southeast Asia on a normal day.  

The next day, I was meeting a few entrepreneur friends in Yangzhou, a city 1.5 hours away from Nanjing famous for its gardens, historical sites and food (anyone tried Yang Chow Fried Rice?). They were locals but spent most of their time in Beijing and Shanghai. 

“Yanzhou has become impossible for locals this summer,” one of them said. “It is just impossible to book or find a table at any decent restaurant – they are all filled with tourists. Even the museums are booked out days in advance.” 

The sentiment on the ground in Eastern China is of stark contrast compared to the negative headlines we hear about China’s economy day in and day out. 

It is also very different from what we hear from business owners – especially manufacturing business owners – who complain about slipping demand/export, and reduced margins because of the incessant competition.  

According to China’s National Bureau of Statistics. In July, total consumption in China rose by 2.5% year on year. When we break it down, goods retail grew by only 1%; F&B, in contrast, grew by 15.8% year on year. 

That’s correlated by the mountains of people we encounter at tourist cities. They might not be spending as much – but they are spending.

Online retail, interestingly, continued to grow year on year – even compared to the covid lock downs in Q2 last year. The official stats from Jan-Jul was a total value (shall we call it GMV) of RMB8.31 trillion (US$1.15 trillion) – a year on year growth of 12.5%. 

Interpreting economic data in China, and predicting trends, has traditionally been quite difficult – not only because the government almost always managed to pull the economy out of a downturn. (An economist friend I met in Nanjing even told me it was a waste of time to look at the economic data – I do not fully agree, but there is something in that statement). 

This time, we see a few announcements from the government on boosting domestic consumption, and making things easier for foreign businesses operating in China.  Investors are nervous – some have openly voiced scepticism. 

Fully restoring confidence takes time – and we do not yet know how this will turn out. Before that, you can either trust the track record of China over the past 30 years, or maybe stay on the sidelines until things become clearer, while looking at every sign carefully.

Another friend, an economic researcher from the establishment in Eastern China, told me he was not worried. “The resilience is there – people have savings. Sooner or later we will bounce back.” 

Good to hear some optimism from someone who must have seen a lot of hard sentiments.