How Is China’s Economy Doing? Not Nearly as Well as China Says It Is
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How Is China’s Economy Doing? Not Nearly as Well as China Says It Is

2023 was supposed to be the year that China turned things around. Instead, the opposite happened.

By DANIEL H. ROSEN
Tue, Dec 12, 2023 8:51amGrey Clock 5 min

This year was supposed to be a turning point for China, a time when the economy headed toward recovery. It turned out to be the opposite.

It’s hard to remember now, but at the start of 2023, the country’s prospects couldn’t have been brighter—in part because of the terrible human price leaders had elected to pay for getting back to growth by ripping off the Band-Aid of its zero-Covid policy toward the end of 2022.

Six months later, everybody was scrambling to understand why their predictions had gone awry.

The common answer—that it was due to the damage to household sentiment caused by draconian pandemic lockdowns—missed the forest for the trees. Well before the pandemic, Beijing’s property bubble, government fiscal tricks and delays in market overhauls had foreordained stagnation. Covid-era conditions didn’t cause this structural crunch, but rather masked its inevitability. On the eve of 2023, Beijing was reporting just 3% GDP expansion, though it is easy to argue that growth in 2022 was actually negative.

Despite the obvious, Chinese officials forecast a 5% to 6% target for 2023.

Once the target was set, officials got to work to make sure it happened. But with business investment still flat or negative due to the still-falling property sector, net exports declining and government spending constrained by shrinking tax and fee revenues, the full burden of delivering China’s forecast growth fell on household consumption.

By spring, it was becoming evident that getting enough consumption to drive 5% GDP growth would require government stimulus. However, though support for state-owned enterprises and banks was perennial, rumours of leader distaste for support for households as “welfarism” swirled, and fiscal stimulus never happened.

Changing the facts

This left officials with only one option for making their targets: They changed previous consumption statistics to make the numbers add up to 5%-plus growth for 2023. While this result is fundamentally inconsistent with evidence over the year, the IMF accepted Beijing’s calculations and updated its own 2023 China projection, out of cycle, on Nov. 7.

An independent tally of 2023 growth might accept Beijing’s official figures of 5% consumption growth as of the third quarter, but the other components of GDP remain flat or negative: government spending, net exports and business investment. Taken together, depending on how negative property investment is assumed to have been in 2023, China’s 2023 GDP probably grew 0 to 2.5%.

This slower growth estimate is far out of whack with the official figures endorsed by Beijing and the IMF, but is far easier to reconcile with the anecdotal evidence this year:

These are just selected bearish indications that are widely known. Officials regularly airbrush over evidence of economic stress, and citizens can be punished for being negative.

Private pessimism

In private, though, Chinese economists were more frank this year. One stated to me that having already shrunk from greater than 70% of the size of the U.S. economy to 67%, bad policy choices were locking in an inevitable descent to 40%. Another said it was a miracle the property downturn hadn’t spilled over into a full-blown financial crisis, yet. Yet another said that neglect of economic growth could lead to social and political instability.

Despite this evidence, Chinese officials put political targets over economic credibility, finding ways to claim growth was on track, such as by stipulating that hard-to-measure services activity was suddenly booming—a claim that couldn’t be refuted given the paucity of quality services-sector data. Authorities insisted the system was working fine and GDP growth would be above 5%, brushing off questions about why foreign firms were leaving, private domestic firms were refusing to invest or make new hires, and consumers were behaving with such caution.

Beijing often claimed weak global conditions explained China’s headwinds, but the U.S.’s performance was the mirror opposite of China’s this year. Having already jacked up interest rates to 4.5% from near-zero a year before, in 2023 the Fed lifted rates four more times to 5.5%. This was widely expected to lead to recession, but by the third quarter real U.S. GDP was holding even with China’s (exaggerated) 4.9% growth, inflation was stabilizing, employment levels were excellent, and foreign firms (including Chinese, where permitted) were making a beeline to the U.S. to avail themselves of subsidies and tax breaks.

What a difference a year makes. In January, the betting was that China’s growth would be five times U.S. growth; instead, taking the statistical funny business out of China’s numbers, the U.S. growth is outpacing China’s. Given the weak renminbi, this picture is even stronger in U.S. dollar terms.

Business leaders have long known that doing business in China meant tolerating risk. There was political risk, intellectual-property-theft risk, market-competition risk, reputational risk, exchange-rate risk, and countless other concerns. But one thing that didn’t require CEO attention was macroeconomic risk: China was a pain, but since it was a huge fraction of global growth, that was tolerable.

This was the year that changed, and macroeconomic risk became just as concerning in China as it is in other economies. In 2022, Covid could be blamed for everything; in 2023, policy and business leaders recognized that China’s goldilocks era was over. Now Beijing would have the same odds of solving unresolved middle-income problems as anyone else.

What next?

Three implications for 2024 flow from this.

First, after the severe 2021-23 property correction, we are approaching a bottom, and construction could add to growth next year instead of subtracting. But few other cyclical drivers are set to turn up, and long-term structural constraints on consumption, government spending and net exports remain.

Crisis risks and liabilities were only kicked down the road in 2023, not resolved, and will continue to drive anxiety in 2024. Compared with this year’s anemic actual GDP, China could see a modest cyclical improvement in 2024, but nowhere near the aspiration of 5%.

Second, 2024 is the year the global spillover implications of China’s slowdown will sink in. Advanced economies will downgrade the importance of market access in China, and Global South nations will be forced to find other engines of development. This means a new phase of geopolitical conditions, with the anchor assumption of a rising China and declining U.S. being retired. The implications of this will be far reaching and challenging to forecast.

Finally, the 2024 wild card is that China could turn back to the market pragmatism that made it the star of globalization over past decades. Security and political experts doubt that Xi Jinping has a single reform-oriented bone in his body. Maybe not, but if market overhaul is the only thing that can enable the Communist Party to pay its bills and finance its aspirations, then no one should rule it out.

In fact, in his first term, starting in 2013, Xi tried to make the market more central, only to suspend the effort after realizing how challenging it would be. Yes, it is difficult to imagine China reversing course on statism today, but it was just as hard to imagine it ending zero-Covid policies last year, or selling stakes in the national oil companies to foreigners 20 years ago.

Reform isn’t the base case for China 2024, but China has a record of surprising, and reform is more than a trivial possibility. That is why smart firms are protecting the option to stay in the China game, even while breathless American politicians talk about gratuitous and unlimited decoupling. In 2024, smart Western officials will give priority to rationality on China, so they can take advantage of Beijing’s economic stumbles—without needlessly damaging the economic and geopolitical interests of their own nations.



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New York Watch Auctions Record Uptick in Sales in the Face of Market Slowdown
By LAURIE KAHLE
Mon, Jun 24, 2024 4 min

Luxury watch collectors showed ongoing strong demand for Patek Philippe, growing interest in modern watches and a preference for larger case sizes and leather straps at the June watch sales in New York, according to an analysis of the major auctions.

Independent and neo-vintage categories, meanwhile, experienced declines in total sales and average prices, said the report from  EveryWatch, a global online platform for watch information. Overall, the New York auctions achieved total sales of US$52.27 million, a 9.87% increase from the previous year, on the sale of 470 lots, reflecting a 37% increase in volume. Unsold rates ticked down a few points to 5.31%, according to the platform’s analysis.

EveryWatch gathered data from official auction results for sales held in New York from June 5 to 10 at Christie’s, Phillips, and Sotheby’s. Limited to watch sales exclusively, each auction’s data was reviewed and compiled for several categories, including total lots, sales and sold rates, highest prices achieved, performance against estimates, sales trends in case materials and sizes as well as dial colors, and more. The resulting analysis provides a detailed overview of market trends and performance.

The Charles Frodsham Pocket watch sold at Phillips for $433,400.

“We still see a strong thirst for rare, interesting, and exceptional watches, modern and vintage alike, despite a little slow down in the market overall,” says Paul Altieri, founder and CEO of the California-based pre-owned online watch dealer BobsWatches.com, in an email. “The results show that there is still a lot of money floating around out there in the economy looking for quality assets.”

Patek Philippe came out on top with more than US$17.68 million on the sale of 122 lots. It also claimed the top lot: Sylvester Stallone’s Patek Philippe GrandMaster Chime 6300G-010, still in the sealed factory packaging, which sold at Sotheby’s for US$5.4 million, much to the dismay of the brand’s president, Thierry Stern . The London-based industry news website WatchPro estimates the flip made the actor as much as US$2 million in just a few years.

At Christie’s, the top lot was a Richard Mille Limited Edition RM56-02 AO Tourbillon Sapphire
Richard Mille

“As we have seen before and again in the recent Sotheby’s sale, provenance can really drive prices higher than market value with regards to the Sylvester Stallone Panerai watches and his standard Patek Philippe Nautilus 5711/1a offered,” Altieri says.

Patek Philippe claimed half of the top 10 lots, while Rolex and Richard Mille claimed two each, and Philippe Dufour claimed the No. 3 slot with a 1999 Duality, which sold at Phillips for about US$2.1 million.

“In-line with EveryWatch’s observation of the market’s strong preference for strap watches, the top lot of our auction was a Philippe Dufour Duality,” says Paul Boutros, Phillips’ deputy chairman and head of watches, Americas, in an email. “The only known example with two dials and hand sets, and presented on a leather strap, it achieved a result of over US$2 million—well above its high estimate of US$1.6 million.”

In all, four watches surpassed the US$1 million mark, down from seven in 2023. At Christie’s, the top lot was a Richard Mille Limited Edition RM56-02 AO Tourbillon Sapphire, the most expensive watch sold at Christie’s in New York. That sale also saw a Richard Mille Limited Edition RM52-01 CA-FQ Tourbillon Skull Model go for US$1.26 million to an online buyer.

Rolex expert Altieri was surprised one of the brand’s timepieces did not crack the US$1 million threshold but notes that a rare Rolex Daytona 6239 in yellow gold with a “Paul Newman John Player Special” dial came close at US$952,500 in the Phillips sale.

The Crown did rank second in terms of brand clout, achieving sales of US$8.95 million with 110 lots. However, both Patek Philippe and Rolex experienced a sales decline by 8.55% and 2.46%, respectively. The independent brand Richard Mille, with US$6.71 million in sales, marked a 912% increase from the previous year with 15 lots, up from 5 lots in 2023.

The results underscored recent reports of prices falling on the secondary market for specific coveted models from Rolex, Patek Philippe, and Audemars Piguet. The summary points out that five top models produced high sales but with a fall in average prices.

The Rolex Daytona topped the list with 42 appearances, averaging US$132,053, a 41% average price decrease. Patek Philippe’s Nautilus, with two of the top five watches, made 26 appearances with an average price of US$111,198, a 26% average price decrease. Patek Philippe’s Perpetual Calendar followed with 23 appearances and a US$231,877 average price, signifying a fall of 43%, and Audemars Piguet’s Royal Oak had 22 appearances and an average price of US$105,673, a 10% decrease. The Rolex Day Date is the only watch in the top five that tracks an increase in average price, which at US$72,459 clocked a 92% increase over last year.

In terms of categories, modern watches (2005 and newer) led the market with US$30 million in total sales from 226 lots, representing a 53.54% increase in sales and a 3.78% increase in average sales price over 2023. Vintage watches (pre-1985) logged a modest 6.22% increase in total sales and an 89.89% increase in total lots to 169.

However, the average price was down across vintage, independent, and neo-vintage (1990-2005) watches. Independent brands saw sales fall 24.10% to US$8.47 million and average prices falling 42.17%, while neo-vintage watches experienced the largest decline in sales and lots, with total sales falling 44.7% to US$8.25 million, and average sales price falling 35.73% to US$111,000.

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