China is Ahead

 

The trade war between the United States and China is being won by the oriental power. At least that is what all indicators show. Thanks to its authoritarian political system China was able to control the virus in Wuhan and its province returning to normality very quick and without significant new outbreaks emerging, just as we see happening in the rest of the world and specifically in the US where in recent weeks the average of contagions increased from 40 to 70 thousand. It is worth making clear almost everything that comes out of China, data included, should be taken with a grain of salt.

As expected, GDP growth figures released this week in the US showed a record recovery of 33.1 per cent in the third quarter. Comparing data between the last quarter and the previous one growth was 7.4 per cent. The other side of the coin indicates the economy shrank and it is now 3.5 per cent smaller comparing the same period of last year. In dollar terms GDP was 18.6 trillion dollars against 19.5 trillion in 2019. Monumental figures that show the size and significance of the American economy.

Experts say that growth is the result of an aggressive fiscal policy derived from loans taken by the federal government going to families and businesses. Close to 4 trillion dollars that propelled the economy during the summer but that has now vanished. The possibility of a new relief bill is stuck because of a political impasse between House leader Nancy Pelosi and Treasure Secretary Steven Mnuchin.

Taking the numbers out of context will say nothing due to the widespread outbreak which most likely lead to new lockdowns affecting many areas with a negative impact on the economy. Undoubtedly changes in consumer behavior will also be another ingredient to the deteriorating economic conditions. Areas where there is close contact as restaurants, airlines, and retail still have not reached a full recovery. The vaccine is an option yet far from being reality.

Let us now focus on the Chinese figures. The Economist magazine alleges there is not much analysis needed to prove that country is in better shape than the rest of the world. Malls full of shoppers, jammed roads during rush hours and crowded tourist sites. All the above point to a dynamic economic recovery focused on domestic demand.

At a time when governments around the globe struggle to get out of the pandemic, Xi Jinping promises a comeback looking to expand the domestic markets and promoting innovation, cutting-edge technologies, and a more efficient farming. The five-year plan also contemplates technological sustainability and a stronger military.

In the trade war, President Donald Trump started with China clearly the United States is playing defense. The promise Beijing committed to buy more American products per Phase 1 of the agreement has not been met while the trade deficit has increased in China’s favor. In addition, the Administration has been obligated to compensate the lesser amount of agricultural goods (corn and soybeans) with federal subsidies. Also, tariffs imposed to Chinese products have meant higher prices for consumers.

In a nutshell, China projects itself as the only economy growing in 2020 according to the International Monetary Fund. Another factor proving the strength of the markets is the successful Initial Public Offering-IPO by Ant Group owned by Jack Ma the Alibaba Mogul. Priced at 34.5 billion dollars it is the highest stock market IPO outside of Wall Street. The result of the tech war the Trump Administration forcing Chinese companies avoiding scrutiny and regulations coming from Congress.