Many people have experienced moments of stagnation and anxiety, where the atmosphere is tense and something is brewing, but the direction is unclear; it seems like a turning point is near, but it's slow to materialize, simply wearing people down.
This is the current state of the market, and perhaps it is also the case for a massive economy like China's.
The pulse burst brought by the AI technology revolution has reached a platform position, and it has been exactly three years since the outbreak of GPT.
The technology sector has been a lone bright spot, in stark contrast to the widespread weakness in the consumer staples industry. This lone bright spot, however, appears to have also reached a critical juncture where it must make a choice between advancing or declining.
If we take a comprehensive and systematic look at the economic data, we will find that the lower part of the K-shaped recovery is quite unstable.
While firmly believing in the official data, we can also glean some clues from the trends in data of different calibers.
Internal and External Differentiation
GDP data is released on a quarterly basis, but proxy indicators for consumption, investment, government spending, and net exports are published every month, and we use monthly data to make estimates.
The divergence between the internal and external sectors is quite pronounced. Fixed-asset investment continues to contract, and the surge in tech investment is still unable to offset the slump in real estate and general manufacturing. The growth rate of social retail sales continues to weaken, and like public expenditure, it is barely holding on to positive territory.
Only imports and exports have seen significant growth, with imports, which have a lower base and have long been dragged down by sluggish domestic demand, even surpassing exports in cumulative growth rate this year.
However, this is largely driven by imports of semiconductor raw materials, electronics, crude oil, and other products. This includes both precautionary stockpiling to prevent price increases and large-scale imports to support better exports, as well as the growth of strategic resources, particularly gold. This is consistent with micro-level experience: many optical module companies tell the market that the limitation on their revenue growth is often the shortage of upstream materials, many of which need to be imported from overseas. Semiconductor companies are also accelerating their imports and production to support the strong demand for global AI hardware.
The chart clearly shows that integrated circuits are the sole dominant category in imports.
These are related to domestic demand, but the correlation is not significant.
For short-term growth, the import growth rate exceeding the export growth rate will further lead to a negative contribution of net exports to growth. However, this is a minor issue. The more important point is that the economy's dependence on external demand is increasing. The more active part of the economy is becoming increasingly synchronized with the global AI cycle.
Discrepancies with Official Data
A comparison of the GDP growth rate fitting results with the official data reveals that the gap represented by the gray bars is expanding. Note that we have adopted the nominal growth rate caliber and used the official price index to ensure comparability.
What are the possible reasons for this discrepancy?
We believe in the reliability of the data, and therefore, let's explain the remaining few:
Official data takes into account inventory, which is a huge omission. In other words, inventory has been growing rapidly over the past two years, with continuous accumulation, including both unsold portions and portions stockpiled for high-growth industries and raw materials.
The monthly social zero data omits service-based consumption, which is a driving force for domestic demand growth and a new engine for the transition between old and new economies. From a data perspective, there is support for this. After years of e-commerce and price equalization explosions, people's demand for physical products has slowed, and they are more willing to pay for services on the margin, which is also a necessary step for the economy to move up to the next level.
According to official data, the contribution of net exports to GDP growth has also turned negative, which is consistent with the estimates.
How Much Does Export Growth Rely on the AI Cycle
China's massive export growth has made us the largest export economy in human history, surpassing Japan, the United States, and the British Empire at their peaks in the last century.
This is a breakdown of the incremental destination countries so far this year. After ASEAN, Hong Kong ranks second. And we know that Hong Kong cannot handle such a large amount of exports, it's just a transit hub. ASEAN may be able to accommodate some mid-to-low-end manufacturing exports, but it also cannot handle this year's incremental growth. The final destination of the transit hub, the ultimate source of incremental demand, is not hard to think of, which country is still investing and buying aggressively.
The irony lies in the fact that the key source of demand is also the place that tries to restrain us. In order to make a profit, we go to great lengths to circumvent various barriers to sell our products there. The demand is external rather than internal, and it is based on an unreliable external environment, making this support point very unstable.
This is the case for the market, but what if it also applies to the economy as a whole?
So far this year, the growth in China's exports has shown a contrast between the incremental growth of electromechanical and non-electromechanical products.
And the electromechanical interior is like this:
The top two growth drivers were integrated circuits and computer communication products.
Of course, seizing this wave of AI demand, with a focus on overseas markets, has the benefit of the export price index finally rebounding with the price surge, and is no longer losing money just to stay in business.
Therefore, Chinese manufacturing is indeed the industry that best captures global demand. However, the shrinking growth of the economy has also narrowed down to a few focal points, with both ends of this focus being outside.
We jokingly say that Koreans' livelihoods are tied to a highly leveraged stock market, Americans' pensions are tied to the Fed's next interest rate decision, and let's not forget how today's economic growth is also heavily reliant on external demand from a certain industry.
(End of article)