China's lacklustre Q3 economic data: "Lack of confidence due to tensions with the USA"

CGTN Europe

CGTN Europe interviewed Marc Ostwald, Chief Economist & Global Strategist, ADM ISI

Transcript

00:00Well, let's talk now to Mark Oswald, who's Chief Economist and Global Strategist at ADM Investor Services International.

00:05Great to see you again, Mark.

00:06So, looking at these figures, China's economy is still growing, grew by 4.8% in the third quarter,

00:13but at its slowest pace in a year, what does that tell us about the health of China's economy?

00:20Well, it's a very mixed picture.

00:23I mean, the industrial production numbers were...

00:25because one really has to have a look at the monthly numbers to get a sense of where things are going.

00:31So, the industrial production numbers were encouraging, particularly the pickup in auto sector output,

00:36even if I'm a little bit surprised, given the talk of cutthroat competition in pricing terms in the sector.

00:44But it doesn't matter. It was still strong.

00:46IT was also strong, as was mining output, including oil.

00:51But the weakness in consumer spending, it's very notable.

00:56It is, in part, a reflection of subsidies which had been in place, fading.

01:02So, you've seen particularly household appliances demand,

01:07basically falling back from July, running at about 26% to just 3% this month.

01:13You know, the worrying part of it really was the fixed asset investment,

01:18which you would have expected to be stronger,

01:22but I'm sure this is going to be addressed during the fourth plenum,

01:26how to bolster fixed asset investment.

01:30It's particularly undermined by the weakness in the private sector.

01:35And I think, to a large extent, that reflects the lack of confidence due to the tensions with the USA.

01:43You know, a lot of companies had relied on exports to the US.

01:48They are finding other outlets, notably the strength in exports to Africa.

01:54Now, you know, up over 50% year on year, and to Asia, also above 10%.

02:00You know, they are making up for it, but losing the United States as a market is, you know,

02:07challenging, I think, is probably the best way of describing it.

02:11Well, let's talk about those fixed asset investments,

02:14because an element of that is the property sector, isn't it,

02:17which is still one of the biggest drags on China's economy.

02:20Why has this real estate crisis persisted for so long?

02:25I think it's a combination of factors.

02:28One, you know, when there were attempts on the official side to start reining in some of the excesses,

02:38particularly at the private sector companies like China Evergrande,

02:42you know, it was probably already too late.

02:48And what has been left, of course, are companies with very large mountains of debt.

02:54And against the backdrop of, you know, weakening wage growth in no small part due to the trade tensions with the U.S.

03:07Also, in part due to, you know, the lagging effects of the pandemic and all the measures that were taken there.

03:16But it's a very huge, it's a very, very large problem to deal with.

03:21You can't just basically start writing off the sort of levels of debt that are there.

03:27And that's really where the problem lies.

03:29Something basically innovative needs to be done to try and ring fence a lot of that debt

03:36and basically gradually wind it down slowly because what you can't have is basically asking the banks to write off a lot of the debt

03:45and taking a massive hit to their balance sheets, which would then impede lending, you know, for other projects.

03:55Mark, great to get your thoughts.

03:57As always, thanks for coming on the program.

03:58Mark Oswald from ADM Investor Services International.

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