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Upper arm of China’s K-shaped economy both a blessing and a curse
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China economy
OpinionChina Opinion
Macroscope
Nicholas Spiro
Upper arm of China’s K-shaped economy both a blessing and a curse
China’s two-speed economy stems from the shift to new growth engines but the export boom it has created is doing little for jobs or consumption
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Nicholas Spiro
Nicholas Spiro is a partner at Lauressa Advisory, a specialist London-based real estate and macroeconomic advisory firm.
Ever since the Covid-19 pandemic erupted, concerns about “K-shaped” economies have proliferated. When it comes to describing business cycles, economists and investors have often used letters of the alphabet, yet it is the emergence of a bifurcated K-shaped economy that best describes the acute challenges confronting governments around the world.
Initially a US-centric description of the post-pandemic recovery, the K highlights a sharp divergence in which different parts of the economy experience drastically different outcomes. While high-income earners and the capital-intensive technology sector, especially the parts tied to the artificial intelligence (AI) boom, have done well, lower-income workers and many labour-intensive sectors have suffered.
While the K-shaped narrative is still heavily influenced by trends in the United States, uneven economic performance and sharp divergences between sectors are far more apparent in China. A glance at the latest batch of research reports from Wall Street banks shows that “two-speed” and “K-shaped” are the most frequently used terms to describe the performance of the economy.
Last month, Chinese exports soared 27 per cent on an annualised basis, far exceeding expectations and up from a 19 per cent rise in May. The export boom is being driven by hi-tech products, with shipments to Southeast Asia and South Korea up 28 per cent and 42 per cent respectively, “indicating robust tech supply chain trade”, Societe Generale said in a report.
This explains why industrial production accelerated by 5.3 per cent year on year. JPMorgan noted that hi-tech manufacturing accounted for almost 40 per cent of the growth in industrial output in the first five months of this year. Along with AI, China’s electric vehicle sector continues to be “one of the clearest examples of the economy’s external resilience”, Fitch Ratings said in a report.
Sectors dependent on domestic demand, by contrast, continued to perform poorly. Retail sales grew a meagre 0.2 per cent year on year in April after expanding 2.4 per cent in the first quarter, while fixed-asset investment shrunk by 9.6 per cent, according to data from Bank of America. A weak labour market, the downturn in infrastructure investment and the fallout from the festering crisis in the property market are depressing demand.
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