Up until a few hours ago Chinese stocks were riding a high in 2023. Hong Kong-listed shares in the e-commerce giant Alibaba are up circa 30% amid some strong signals of a ‘Chinese reopening.’

Putting a slight damper on proceedings – China’s GDP expanded by a horror show 3% last year, according to the official stats released, Tuesday.

That’ll be one for the history books, certainly it’s among Modern China’s bleakest annual performances on paper.

That bit’s not so surprising.

The world’s second-largest economy was shredded by the pandemic and diced by Beijing’s madcap zero-COVID policy.
That smashed domestic consumption and neutered overseas demand.

Then forever-president Xi Jinping started forcing major trading partners to seek out new markets after choosing economic coercion over patience and partnership.

Hong Kong’s open markets and Chinese tech’s free innovation have been under heel for a few years now, while Chinese property development’s festering corruption has been allowed to fester.

So yes, the country’s annual growth was also well off an earlier, humbug official target of 5.5%. For the October to December quarter the economy grew 2.9% on year, slowing from 3.9% in Q3.

The release follows a swag of downgraded forecasts from major money managers concerned by Beijing’s crazy-brave all or nothing approach to COVID-19.

Accompanying the data, this statement from a fascinatingly straight-shooting National Bureau of Statistics:

“The foundation of domestic economic recovery is not solid as the international situation is still complicated and severe while the domestic triple pressure of demand contraction, supply shock and weakening expectations is still looming…”


Shocks galore

But what IS shocking about the data drop (to me anyway), is it’s apparent naked umm…. honesty?

That’s a huge word. I might backtrack. Genuine? Eek. I’ll circle back to this.

Perhaps what I mean for now, is it seems mathematically accurate.

That’s wildly unexpected.  Quadrupally so in the Age of The Eternal Chairman. Xi is Old School Marxist. A Revisionist Historian who writes his history as he goes.

COVID-19 was a great success. China’s contribution to saving the world from disaster, undeniable, as state-media has been trumpeting at it’s loudest for weeks now.

This one on Monday from the Global Times:

Screenshot: Global Times


So why this sudden fiscal frankness?

During the boom years, one could almost hear the officials giggling as they fiddled about with GDP forecasts. A few of those also missed their official targets.

But when you’re expecting 9.9% annual growth and you turn around and magnanimously say you only hit 9.85%, well, there’s a universal self-awareness. The 0.o5% miss, very cheaply buys you a momentary 15% kudos for taking a casual stab at being sincere.

And the nice bit is everyone is welcome in on the gag. Leg and back slapping all round. Nice feelings.

But mainly we all just stared at the numbers. Halcyon days.

Times of plenty.

China: GDP Growth rate

Source: World Bank. Via MacroTrends


Again there’s a great deal of own-goaling going on.

On December 27 last year (ie: a few weeks ago) the NBS got out its abacii again and rebooted the previous year’s output, which isn’t unheard of.

Now, China’s 2021 gross domestic product already grew a beer-spitting 8.1%, but probably hungry for a bit of an easy win, the NBS were trotted out to say that in fact the figure was circa US$90 billion (556.7 billion RMB) more than originally calculated.

As Bloomberg, noted, it was a hell of a surprise hole to have to fill: “a revision that added the equivalent of Ghana’s total output to the size of the world’s second-largest economy.”

Observations like that are why Bloomberg keeps getting made fun of in state media.

So all up that made China’s 2021 GDP worth some 115 trillion yuan (US$16.5 trillion).

The revision put GDP for the full year (2021) at 8.4%, compared with 8.1% released in January, which is what we’re looking at now for 2022.

More importantly, the sugar hit revision, means the comparison base for China’s economic growth this year instantly became higher.

On the other hand, it’s easy to see why Xi Jinping is itching for a win. After decades of double digit growth…

China GDP growth under XJP (2012 – 2022)

 Via Trading Economics

Hard truths

I cannot remember if the official numbers have ever come in so emphatically under the bar set by the State Council and out of the mouth of the Premier his-self.

In December, outgoing Premier Li Keqiang welcomed some big names to Anhui and briefed them on China’s economic situation.

The seventh stupidly named “1+6” Roundtable in Huangshan City on Dec. 11 was still an epic ho-down.

Among a glittering attendance list was World Bank president David Malpass, Kristalina Georgieva MD at the International Monetary Fund, the WTO’s director-general Ngozi Okonjo-Iweala and our own fiscally fascinating Mathias Cormann now secretary-general of the OECD, the Organization for Economic Cooperation and Development.

According to the official release Li ‘pointed out’ to the gathered naive:

“…that facing the impact of the pandemic and other factors beyond expectation this year, China promptly introduced a package of policies and measures to stabilise the economy. As a result, the downward trend at the beginning of the second quarter was quickly reversed, and the economy is recovering and showing stabilizing momentum.

On the whole, China has achieved stability in employment and prices, and kept its overall economic performance stable. Major economic indicators are within an appropriate range. As the measures for further improving the COVID-19 response are put into practice in a gradual and orderly way, China’s economic growth will continue to rebound.”

And I also like this from the Global Times on Tuesday:

‘The Chinese Premier presided over a State Council executive meeting on Tuesday, stressing the need to better coordinate epidemic prevention and control and economic and social development to lay a solid foundation for growth in 2023, following the country’s adoption of optimised epidemic prevention and control measures.

‘The latest call for efforts to boost growth in 2023 comes as expectations both in China and abroad are growing for a rapid recovery in the world’s second-largest economy next year, with many domestic and foreign institutions expecting a growth rate of around 5% in 2023, pointing to the lifting of anti-epidemic restrictions and various efforts to stabilise growth.’

So much crazy talk in two pars: “following the country’s adoption of optimised epidemic prevention and control measures.”

Anyway, it’s rare as hen’s teeth to have growth figures miss official targets.

Communists just don’t miss.

And Chinese Communists? Man, they’re like the Canadian Mounties: they always get their man.

Carlos Casanova is a Geneva-based economist at the hallowed Swiss private banker L’Union Bancaire Privée (UBP).

He’s also scratching his head.

“This would be the first time in history that the government misses a GDP growth target by such a large stretch,” Carlos reckons.


Good, bad news

It’s certainly a landmark event. But not a bad one.

Everyone knows that China’s GDP was shot. It was shot dead many times, publicly again and again these last few years.

We watched them fire hollow-point after hollow-point into knees and feet and such. Bang. There goes platform technology. Bang. There goes open markets in HK. Boom. There goes any hope of openness and transparency.

So, calculates some brave soul inside the CCP, ‘let’s shoot straight on this one.’

‘Bear with me lads, not only is it going to be all economically upwards from here, but what these geezers want isn’t backwards fibbing, but forward transparency.’

‘I know it sounds crazy, and you can shoot me later, but let’s go with the truth. It’ll be a brief pang, followed by a lot of talk about how we’re being nice again and we’ve turned a page yada yada.”

‘And we can pin it all on Li Keqiang, he’s gone in March as it is.’


Cheering on from the bleachers

The fact is there’s not a single brain out there that wants China to fail.

“Investors are keen to look past this fundamental shift as they are focused on a consumption-led recovery that should take hold from Q2-23 onward,” Carlos says, and he’s bang on.

What lies ahead for China could pull all of us out of a dire economic mess. It won’t be easy and everyone – save the Washing ton Examiner – is rooting for a comeback, and forget the fibs and damn the tyranny.

According to a December report out of the Rhodium Group, even the best COVID endgame is unlikely to give us all the 2023 we want from China.

“While GDP growth above 4.5% may seem reachable at first glance, the more one looks at the assumptions needed to achieve that level of expansion, the less realistic it seems.

“We believe that growth as low as 0.5% is within the realm of the possible. If Beijing starts crucial, long-deferred structural reforms in earnest, growth between 1-3%, in 2023 and over the medium-term, would be a reasonable expectation.”

We’re more exposed to Beijing’s efforts this year than most.

Josh Chiat knows it.

“Given the heft of Australia’s producers, iron ore prices have a massive impact on the ASX and its key indices, as well as the broader economy,” he says.

China’s outlook is inevitably the determining vote

“Its fortunes are important to every trader, regardless of whether they are an active investor in the space.”

Watching China is making mugs out of analysts and economists again. This ‘truth telling’ will also serve to obfuscate a little further.

Josh says that pegging the price of iron ore on China’s behaviour is an adventure in itself.

Westpac went from a US$90/t end of 2023 price forecast to US$70/t and back to US$90/t in less than two months.

“Have some conviction please.”

But some investment banks are more bullish, Citi thinks iron ore will hit US$120/t on a three month horizon (US$105/t end 2023) after China’s reopening, with upside of as much as US$150/t if Xi and Li Keqiang go bonkers on the credit easing,” Chiat adds.

Hey! Wait. Earnest, that was the word I was looking for!