The economy is weak going into the Third Plenum

CHINA FINANCIAL - Report 15 Jul 2024 by Michael Pettis

Special points to highlight in this report:

* The Third Plenum opened today and will go on through Wednesday. Today also saw the release of June and second quarter economic data.

* Today’s data release (along with inflation and trade numbers at the end of last week) confirms trends that we have seen all year: while the supply side of the economy remains strong, the demand side is still very weak and is continuing to fall behind. June’s exports, for example, surged 8.6 percent year on year even as imports dropped 2.3 percent. The result was a $99 billion trade surplus, the largest monthly trade surplus in history.

* The moderately good news was on the debt side. Total debt rose very sharply in 2024 (the debt-to-GDP ratio rose by 7.8 percentage points from the end of 2023), but most of this occurred in the first quarter. Second quarter debt numbers were much more reasonable.

* I continue to think Beijing has little choice but to implement a fiscal stimulus directed at consumption, either in the third quarter this year or early in the fourth quarter. This is still considered a controversial call, but much less so than it was three months ago.

Now read on...

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