It won’t be easy for foreign firms to leave China

CHINA FINANCIAL - Report 13 Jun 2022 by Michael Pettis

Special points to highlight in this issue:

* The Chinese trade surplus in May was by far the largest trade surplus ever recorded by China for that month. For the first five months of the year China’s trade surplus was 42 percent greater than during the same period last year. Last year’s trade surplus was a record surplus, 26 percent higher than the surplus in 2020, which was itself a record surplus.

* Chinese debt in May rose in line with previous months, but with GDP growth likely to be flat, this growth may translate into one of biggest recorded monthly increases in the country’s debt-to-GDP ratio. Meanwhile CPI inflation remained subdued, and even declined on a month-on-month basis.

* These aren’t coincidences. They are all the automatic consequences of major fiscal stimulus aimed almost wholly at the supply side of the economy, even as the demand side continues to struggle.

* It is precisely for this reason that the much-vaunted fleeing of foreign businesses out of China may be sharply exaggerated. Once the COVID lockdowns are behind us, it will be very difficult for foreign businesses to forgo the subsidies associated with keeping their operations in China.

Now read on...

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