We put together a quick guide to the Chinese government following the March 2018 restructuring. We outline the basic structure of the Party and state, and review the ministerial-level reshuffle: which organizations are new, which have been restructured, which lost power, which gained power, and which are pretty much the same.
We expect growth of outstanding Total Social Financing (TSF) to continue decelerating in September. The issuance of local government bonds will, of course, provide an offsetting form of financing. But even accounting for a huge increase in bond issuance, the growth of broad credit (including both TSF and local government bonds) is set to improve only slightly.
Local governments have specifically been requested by central authorities to ramp up issuance of special construction bonds in September 2018. The process already began in August, with RMB 856 of new local government bonds being issued and an expected RMB 1.2 trillion following in September.
Finding signal from noise
China’s economy is slowing – everyone knows that. But focusing on headline numbers like national GDP growth obscures the volatility and increasing economic divergence from province-to-province and city-to-city – the places where business and investment decisions actually play out.
That reality got us thinking about GDP per capita at the provincial level. To do some comparisons, we generated the chart below – which looks at the rankings of provincial GDP per capita as they have evolved over the past 40 years. From a birds-eye view, the whole thing looks like a bad cross stitch, but look a little closer, and you can see some interesting developments.
Some the insights come as no surprise: China’s major municipalities – Beijing, Tianjin and Shanghai – have steadily been the richest provinces for the past four decades. Guizhou, meanwhile, has remained among the poorest. But there are several provinces who have seen dramatic changes in fortune. Looking a bit closer at these helps illuminate some of the underlying trends in China’s economy over the past four decades. For example:
Once an economic backwater, coastal Fujian is now one of China’s richest provinces. Fujian benefited greatly from China’s opening to the global economy in the late 1970s. Since that time, the province has excelled at developing manufacturing clusters to efficiently service China’s export machine, cementing its place at the top of China’s provincial league tables.
This province is often considered the key jumping off point for China’s Belt and Road Initiative (BRI), which is looking to invest hundreds of billions of dollars into Central Asia to reinvigorate the Silk Road. The province desperately needs investment – as a sparsely populated western area, it has seen hard times over the past couple of decades. Keep an eye on Gansu to gauge the state of China’s economic push into the near abroad.
As one of the most vibrant provinces in China, Guangdong has long been a leader in innovation. It helped to power China’s export machine throughout the 2000s and is now home to a thriving tech ecosystem that is looking to rival Silicon Valley – as goes Guangdong, so goes China’s technological revolution.
This rust belt province in the northeastern part of China has struggled since the heyday of China’s industrial economy gave way to light manufacturing exports in the 2000s. Given its high proportion of state-owned enterprises, the area is a bellwether for the performance of China’s state-driven heavy industries.
A couple of provinces ranked equally in the same year, particularly in the early days when there was less disparity in GDP from province to province, but this being a bump chart, there’s no such thing as a tie, so provinces of equal rank in the same year have been denoted with a dashed ellipse.
Pass it around, hand it out, stick it in your PPTs, but please credit us.
This is out outlook for the overall level of debt in China, as measured by Total Social Finance as a percent of GDP. Assuming 9.8% credit growth and 9.5% nominal GDP growth, the macro leverage ratio should remain fairly stable until end-2019.
Growth of total bank lending has been remarkable steady in 2018, while total credit growth has fallen dramatically, reflecting the regulatory crackdown on shadow banking.
As real economic growth slows over the next several quarters, it will become increasingly important for regulators to defend upstream price growth through Supply-Side Structural Reform. This is our outlook for growth and inflation.
The cost of liquidity for banks has been remarkably steady in the first half of 2018, while non-banks seen rates spike several times. This reflects regulators’ efforts to reduce reliance on shadow banking.
If Chinese exports to the US drop off because of the trade war, it won’t have a major effect on overall exports. If export growth to the US falls by half, total export growth will only drop by 1 percentage point.