Xi Jinping Spoke Without Convincing – The China of 2024 Is Strongly Reminiscent of the Japan of 1990.
Will China be able to emerge from the spiral of zero growth and deflation faster than Japan in the 1990s?
Just 48 hours ago, I told you that Xi Jinping was being awaited like the messiah by traders the world over. Everyone was waiting to hear what China's leader would announce to get his country out of its current monstrous stock market crisis.
Before going back over what was announced by Xi Jinping, a new figure was published this morning which is without appeal.
It's the Chinese consumer price index for January 2024.
The result is -0.8%. The consumer price index is in free fall. This is the sharpest fall in 15 years. China is facing DEFLATION, as I will try to explain in what follows.
China is going through an unprecedented crisis. China has announced 5.2% growth for 2023. No one is convinced by this figure. The reason is that China is in a deflationary spiral.
While all the world's major economies are still battling inflation, and the Fed has postponed a possible rate cut until at least mid-2024, prices in China are falling month after month!
From -0.3% in December 2023, the consumer price index fell by -0.8% in January 2024.
It's time to talk DEFLATION for China
Since July 2023, China has entered DEFLATION. Since then, consumer prices have either fallen or stagnated. Even if the January 2024 figure was particularly affected by the sharp drop in pork prices and should rebound in February 2024, the problem is serious. I'd go even further and say it's a very serious problem for CCP.
If this problem is so serious, it's also because, at the beginning of 2023, everyone was expecting an explosion in Chinese growth caused by unbridled household consumption following 3 years of COVID in China.
Economists even feared that this explosion in consumption would rekindle the global inflationary spiral. But once again, all the economists were wrong, and it turned out otherwise.
Unlike American consumers, who continue to defy the Fed, Chinese consumers are not consuming. The State is investing less, and Chinese companies are floundering. This means that all the engines of the Chinese economy are now idling.
Xi Jinping has spoken but still hesitates
On Tuesday, February 6, 2024, Xi Jinping spoke. Xi Jinping first decided to fire the top officials of China's market authorities, because he was unhappy with the downward spiral in the stock market.
Despite this major sweep, Xi Jinping is hesitating.
Xi Jinping is still reluctant to embark on the massive stimulus plans that the market has been waiting for. Such plans are always costly, and their medium- and long-term effectiveness is not always obvious.
Deciding on such costly plans when all of China's economic players are over-indebted is not a decision to be taken lightly!
The similarities between Xi Jinping's China 2024 and the Japan of 1990 are uncanny.
For those interested in economic history, the current situation in Xi Jinping's China must remind them of Japan in the 1990s. The similarities are uncanny.
Back then, everything pointed to Japan challenging America for the unofficial title of the world's leading power. And yet, Japan collapsed. For over 20 years, Japan was mired in a spiral of zero growth and deflation.
Demographics, bursting real estate bubbles, excessive debt - the same causes and effects for yesterday's Japan as for today's China. It remains to be seen whether Xi Jinping and the CCP will be able to prevent China from remaining mired in the same spiral of zero growth and deflation for so long.
