China's Green Shoots

IS THE WORST OVER for the Chinese economy? Some economists think it is. Others disagree. The optimists point to higher than expected GDP growth of 5.3 per cent in the January-March 2024 quarter. Manufacturing activity has meanwhile moved into positive territory with the purchasing managers’ index (PMI) recording 50.8 for March 2024. That’s the first time in seven months that the manufacturing PMI has gone above 50, a reading which separates expansion from contraction.

- Minhaz Merchant

Not all is rosy though. Trade volumes remain subdued. Foreign direct investment (FDI) plunged 26 per cent in January-March 2024 over the year-ago quarter. The real estate sector remains embroiled in crisis. Foreign investors have been unnerved by Chinese President Xi Jinping’s crackdown on global companies.

Till a few years ago Apple manufactured nearly 95 per cent of its iPhones in China. That has fallen to 75 per cent and is set to reduce to 65 per cent by 2026. India now accounts for manufacturing over 12 per cent of all iPhones. That figure is expected to rise as high as 25 per cent in the next three years. Tesla’s decision to start manufacturing electric vehicles (EVs) in India will broaden the EV market in the country where Tata has taken an early lead.

China’s problems are largely man-made. Xi’s pivot to state capitalism from private capitalism has unnerved both foreign investors and local Chines businesses. They know what befell Jack Ma, the founder of Alibaba, when he criticised China’s economic policies.

Real estate, however, remains China’s most intractable worry. According to Goldman Sachs, private developers face a financing shortfall of $553 billion. The rest of the Chinese economy though is showing signs of mild recovery. Exports are up. Factory investment grew 10 per cent in January and February 2024 while manufacturing in computers and electronics was up by 15 per cent for calendar 2023.