BROKEN CHINA


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China’s official Purchasing Managers’ Index (PMI) increased from 49.3 in October to 50.2 in November, ending six months of contraction and surpassing Wall Street Journal economists’ prediction of 49.5. (Numbers above 50 indicate expansion.)

Nonmanufacturing PMI jumped from 52.8 in October to 54.4 in November. 

The Chinese Central Bank, however, warned that rising household debt in China accounts for 60 percent of the GDP so far in 2019. Currently, total household debt equals total household income. 

The People’s Bank of China said, “The debt risks of the household sector and some low-income households in some regions are relatively prominent and should be paid attention to.” Stricter policies are necessary, said the bank, to “guard against household sector debt.”

Household debt in China, which is 60 percent of the GDP, is lower than in the U.S., where it’s about 75 percent of GDP.  In the EU, household debt is some 50 percent of GDP. 

Swimming Against the Currency 

As long reported in previous issues of the Trends Journal, China at this time is not purposely devaluing its currency to increase imports as Washington claims and will, along with other nations, develop strategies and options to break away from U.S. dollar dominance.

On the yuan front, People’s Bank of China Governor Yi Gang reiterated that he would not allow quantitative easing and wrote, “We should not let the money held by the Chinese people become worthless… Maintaining positive interest rates and upward-inclined yield curve is generally conducive to the economic entities, and in line with the Chinese people’s saving culture, thus beneficial to the sustainable development of the economy.”

Yi Gang also said, “The exchange rate of China’s yuan is decided by supply and demand, we will not play the yuan as a tool and will not resort to competitive devaluation of the yuan.”

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