Don’t believe the dire predictions. China is doing very well

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Industrial China is alive and well despite fears of an economic slowdown. It just doesn’t look like it used to – or at least not what everyone is used to.

Last week’s data showed a dismal picture: industrial production rose 3.8% year-on-year, which was below expectations, fixed investment grew more slowly than expected, and credit , usually a sign that the economy is doing well, was weak. Real estate figures, long taken as an indication that authorities were going to maintain the debt-fueled construction extravagance of developers, were depressing everywhere.

Other numbers, however, paint a different picture: Beijing’s priority areas are doing very well. Electric vehicle battery installations in China increased by 114%, while production and sales of electric vehicles increased by more than 100% in July. Overall supplier delivery times are currently well above the average level since January 2020, but for emerging industries that include high-end equipment manufacturing, electric vehicles and other sectors have increased sharply over the past few years. last months. Moreover, despite what confidence surveys tell you, foreign direct investment in China’s high-tech manufacturing industry grew by 31.1% in the first six months of the year. South Korean investments soared 37.2%, while the United States rose 26.1%.

To assume that the whole economy is collapsing is to miss the point. The truth is that Beijing’s industrial priorities on the development of high-tech sectors have not changed much from those set out in recent five-year action plans. This week, the Ministries of Science and Technology and Finance presented a plan for 2022 and 2023 of measures including financial support and tax incentives to strengthen the technical capacities and innovation capacity of companies – onshore and offshore. .

Investors and China watchers did not want to believe that the factory of the world could selectively upgrade and gain market share the way it has. Don’t get me wrong, this is not an optimistic assessment of China’s sudden technological clout. Rather, it is a closer look at the changing anatomy of the country’s industrial economy. Expectations based on what China Inc. was will therefore be insufficient.

She is already climbing the scale of values. Electric vehicle battery technology and the entire supply chain around it, including metal processing, have found their way into China. Companies in priority sectors continue to increase their capital expenditure.

Longi Green Energy Technology Co., a maker of solar panel materials with a market capitalization of nearly $70 billion, announced last week that it was spending an additional 6.95 billion yuan ($1.02 billion) in addition to the 19.5 billion yuan already announced to increase the capacity of a solar cell and module production project in Ordos, Inner Mongolia. BYD Co., backed by Warren Buffett’s Berkshire Hathaway, has signed an agreement to invest 28.5 billion yuan in a battery production plan. Chipmaker Semiconductor Manufacturing International Corp. said it does not plan to cut its spending plans by $5 billion, its highest spending relative to the amount spent annually in the past five years. Spending in the renewable energy sector – accounting for just over 80% of new capacity in the first half of this year – rose 22.4% in the second quarter.

The world’s largest industrial technology companies recognize how much they need China, too. The likes of Dutch high-tech chip equipment manufacturer ASML Holding NV recognized this. On its last earnings call in July, the company’s CEO, Peter Wennink, said: “We have to realize that China is a big player in the semiconductor industry” with the capacity to manufacture certain types chips that “the world needs”. Yet ASML has been caught up in geopolitics, with the United States pushing the Netherlands to ban the company from selling to China.

There is undoubtedly bad news, but if you look beyond the headlines about continued lockdowns, struggling businesses in non-priority sectors and electricity rationing, it is clear that the intention to Beijing to get through remains strong. So while some companies in Sichuan will have to balance electricity consumption and production volumes, others said their operations were unaffected. In fact, an optimistic view is that as China builds its modernized factory, the country could eventually relieve unemployment pressures, especially for the growing mass of unemployed university graduates.

Market memory is short, but it’s important to remember that China’s problems – the crumbling real estate sector, creaky little banks and frothy short-term money markets – have been brewing for a long time. So all of this should hardly come as a surprise. It’s time to look through a new lens.

More from Bloomberg Opinion:

• Can a Covid-Zero China still lift the world? : Anjani Trivedi

• Small failing Chinese banks reveal big problem: Trivedi & Ren

• College graduates too valuable to work in factories: Shuli Ren

(Corrects spelling of Warren Buffett’s name.)

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.

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