Macroeconomics Weekly Report - 2023 11 13

• The Chinese economy has faced significant challenges throughout the year, but there is ample room for stimulus if Beijing chooses to intervene.
• A series of unfavorable economic indicators have emerged, creating considerable obstacles to building confidence in both consumption and investments.
• Nevertheless, its international trade remains resilient with a depreciated exchange rate, resulting in greater competitiveness for its products.

The reopening of China post-COVID-19 has been quite challenging. High youth unemployment, economic slowdown, and high public debt are some of the issues faced by the world's second-largest economy.

Another challenge that China is grappling with is the pace of price increases, which persist in the disinflationary zone. This reflects the difficulty in stimulating consumption and investment in the country.

On the other hand, this could lead to a more flexible fiscal and monetary policy over time. Beijing has been avoiding the use of more aggressive economic stimuli at the moment, but that does not mean it cannot use them in the future.

Economic data from China in 2023 has elicited a mix of sentiments in the market. On one hand, the country's economic slowdown, driven by challenges in the real estate sector, is a warning sign. On the other hand, its trade balance has been resilient, even considering the global scenario of high interest rates.

When measured in dollars, China's exports fell by 6.4% in October 2023, while imports increased by 3%. However, this decline can be explained by the significant devaluation of the yuan against the dollar. The monetary tightening carried out by the United States and other major world economies has created a more challenging environment for the appreciation of currencies in emerging markets, such as China.

The devaluation of the yuan against the dollar has created a certain “distortion” in the comparison of China's imports and exports with the previous year when the yuan was more appreciated. In part, this explains why, when measured in dollars, the data seems milder.

China's exports grew by 0.4% compared to the previous year, reaching 19.55 trillion yuan for the cumulative period of 2023, while imports decreased by 0.5% compared to the previous year, totaling 14.77 trillion yuan, according to data from the General Administration of Customs.

However, it is important to note that the profile of China's international trade is changing. Trade with Western countries is decreasing, with a 1.6% decline with the European Union and a 7.6% decline with the United States compared to the previous year. In contrast, trade with Central Asian countries is growing, with an increase of 34.8%.