What China Isn’t Telling the World About Its Economy

Beijing has chosen not to disclose statistics concerning youth unemployment in its recent effort to downplay unfavorable patterns amidst stagnant economic growth and increasing global worries.

August 15, 2023, 8:15 in the morning Eastern Time

China Counters Bad News: Skip It

On Tuesday, China shared additional negative updates regarding its economy, yet one particular detail caught attention: The government announced its decision to cease publishing statistics on youth unemployment, shortly after the rate reached an all-time high of 21.3 percent in June.

The choice might be fleeting, but it will only add to the difficulty for investors in grasping the current state of affairs in the nation — and that could potentially be the objective. Stocks in Hong Kong and Shanghai experienced another decline, however, unlike Monday, the negative impact did not extend to other Asian markets.

China's economy, which is currently the second largest globally, is experiencing a long-lasting decline. The latest data revealed that retail sales and industrial production in July were both lower than what was predicted. In an attempt to revive the economy, China's central bank reduced a benchmark lending rate on Tuesday, although this action falls short of the substantial stimulus measures that investors have eagerly anticipated following the country's recent deflation.

This presents a difficulty for worldwide economic expansion. The International Monetary Fund (IMF) previously predicted that China would contribute 35 percent to the global growth this year, but it seems less probable now. The deceleration is impacting various sectors including commodities and construction, and major American corporations operating in China do not anticipate a quick recovery.

Raising the level of obscurity is not beneficial for global investors. The amount of economic information disclosed by China has significantly decreased since Xi Jinping took office. Lately, it has been reported that Chinese economists have been advised against addressing unfavorable patterns. Additionally, authorities have instructed lawyers involved in initial public offerings to tone down their expressions regarding the potential hazards associated with the country.

According to Steve Tsang, who heads the SOAS China Institute in London, Mr. Xi's main priority is centered around China and is not particularly concerned with how his actions are perceived internationally. He has instructed officials to effectively convey China's narrative and may view the suppression of negative economic information as a means of boosting domestic confidence, even if this is interpreted differently by investors from other countries.

However, it also demonstrates the importance Beijing places on business. "The primary concern is the progress of state-owned enterprises in the economy. It is acceptable for private companies to generate profits, but they must align with the principles of the party," explained George Magnus, a consultant at Oxford University's China Center and a former UBS chief economist, to DealBook.

Is a vulnerable China more risky than a formidable one? President Biden cautioned last week that China posed a significant threat due to its economic difficulties. "This is concerning because when malevolent individuals encounter hardships, they tend to engage in malicious activities," he further emphasized. Additionally, certain individuals in Washington who are critical of China are advocating for heightened surveillance of investment funds operating in China (further details provided later on).

According to Mr. Tsang, there are dangers involved in both scenarios. A robust and influential China, led by Xi, aims to reshape the global landscape. Conversely, a leader in control of a deteriorating, impoverished, and volatile nation like China will resort to any means necessary to maintain their authority, without concern for the impact on the international community.

Donald Trump has been charged with attempting to reverse the outcome of the 2020 election in Georgia. A grand jury has accused the ex-president and 18 others, including his former chief of staff, Mark Meadows, in a comprehensive racketeering lawsuit. Mr. Trump, who is leading the Republican race for president, has faced four distinct criminal charges since April. He dismissed the most recent case as being built on "falsely made allegations."

Russia has decided to increase interest rates in order to support the weakening ruble. Earlier today, the central bank raised the prime lending rate from 8.5 percent to 12 percent. This move has resulted in the ruble's value slightly increasing. However, concerns over inflation persist as the ongoing conflict in Ukraine, which is being led by the Kremlin, continues to impact the country's economy negatively.

UBS has reached a resolution on the fraud allegations that originated from the 2008 financial crisis. The major Swiss bank has consented to pay a hefty $1.4 billion in penalties related to the accusations of misrepresenting the mortgage-backed bonds it peddled. These specific financial instruments played a central role in the housing market crash that triggered a worldwide economic downturn.

Michael Oher, the person who motivated the creation of "The Blind Side," claims that his adoption was based on falsehoods. The ex-N.F.L. athlete has submitted a request to a Tennessee court seeking to legally sever ties with the family who welcomed him into their home. He alleges that they deceitfully manipulated him into relinquishing control over his own choices during his teenage years, all for the purpose of profiting from his life narrative, which was brought to the big screen in the 2009 movie adaptation.

Can China's Crackdown Impact Mainstream Investors?

Members of Congress who favor a hardline stance towards China are advocating for the Biden administration to take stronger measures to limit American investments in Chinese technology companies that they believe pose a threat to national security. These lawmakers argue that the recent executive order, which focused on restricting direct investments by private equity and venture capital firms, should be broadened to also include popular investment options like mutual funds and index funds.

The fund managers BlackRock and MSCI have caught the attention of lawmakers. A House committee focused on competition with China is examining the firms for providing investment products that involve Chinese companies, which may raise concerns related to national security and human rights. Mike Gallagher, the head of the committee and a Republican from Wisconsin, stated that it is unacceptable for American funds to support the Chinese Communist Party's military expansion, its surveillance state characterized by extensive use of technology, or its severe violations of human rights. This information was shared with DealBook.

The potential reach of the China sweep extends to numerous financial institutions on Wall Street. According to the congressional subcommittee dedicated to China affairs, there are a total of 57 investment management companies, such as BlackRock, State Street, Vanguard, and Fidelity, that provide investment options in Chinese companies identified by the committee as a cause for concern.

Investment in China is facing a strong crackdown that is backed by both political parties. Representative Maxine Waters, a leading Democrat on the House financial services committee, expressed the need to protect American savings from being used to strengthen China's military and technological capabilities. She has also called for enhanced oversight of mainstream investment products to be included in President Biden's executive order.

Legal professionals suggest that enforcement could potentially present challenges.

"It marks the commencement of a fresh phase of unraveling," John O'Connor, the Chief Executive Officer of J.H. Whitney Data Services and a former advisor to the Defense Department's business board, expressed to DealBook. He acknowledged that there exists a constant escalation of tensions between Washington and Beijing, and pointed out that "these actions and retaliations result in significant implications for businesses."

Big Climate Case In Montana

Monday's significant court ruling in Montana could potentially have widespread implications for the way companies and governments are held responsible for the effects of climate change. The verdict determined that the state's negligence in evaluating the consequences of rising temperatures during the authorization of fossil fuel initiatives was in violation of the constitution. This decision is particularly noteworthy in a region recognized for its breathtaking natural landscapes and abundant coal deposits.

This trial in the United States marked a historic event as it was the inaugural case of its nature to reach the courtroom. It was a remarkable win for environmental advocates, a feat that does not occur frequently. The lawsuit was initiated by individuals aged 5 to 20 and revolved around a provision in Montana's constitution. This provision assures its citizens the privilege of inhabiting a clean and safe environment. The plaintiffs contended that a law enacted in 2011 by Republican legislators in the state of Montana violated this clause. The aforementioned law prohibited authorities from considering climate change during the assessment of significant energy endeavors.

The attorney general of Montana expressed their disbelief at the decision and committed to challenging it. This would result in the case, Held v. Montana, being taken to the Supreme Court of the state.

There are comparable instances making their way through the judicial system across the entire country. Various states and cities are filing lawsuits against major oil companies such as Exxon, Chevron, and Shell, seeking reparation for the destruction caused by climate disasters. Additionally, individuals are aiming to obtain compensation from governments, asserting that these officials have supported the fossil fuel industry and neglected their duty to safeguard their own people.

The primary focus of the legal approach revolves around the younger generation. They are the individuals who file lawsuits in different states where environmental safeguards are firmly established in state constitutions, just like in Montana. Furthermore, there has been a significant surge in climate litigation worldwide since the approval of the Paris climate agreement in 2015, where 195 nations pledged to diminish their emissions.

According to Michael Burger, the head of the Sabin Center for Climate Change Law at Columbia University, this ruling could have an impact on similar cases. He stated that this case was a test for the validity of climate science, and the court's conclusion was that the science is accurate. Burger also mentioned that this decision will serve as a reference for other courts both within the United States and internationally.

Where Do Buffett & Other Investors Invest?

On Monday, the largest investors in the world, such as Berkshire Hathaway led by Warren Buffett, revealed their most recent approaches in their quarterly 13F regulatory filings. These filings provided insights into the companies they currently prefer and the ones they've lost interest in, especially as stocks retreat from their impressive performance in the first half of the year.

Below are a few prominent topics extracted from the submitted documents:

In spite of the surging interest rates for home loans, Berkshire Hathaway is placing significant bets on the housing industry. Warren Buffett's investment company revealed that it has invested a total of $800 million in the homebuilding companies D.R. Horton, NVR, and Lennar, as of June's end. Additionally, it has reduced its ownership positions in Chevron, General Motors, and Activision Blizzard.

There is growing uncertainty surrounding tech stocks. The Nasdaq 100, made up of the largest and most influential technology companies, has seen a substantial 40 percent increase since the beginning of the year. However, renowned hedge funds like Tiger Global Management and Maverick Capital have decided to decrease their investments in high-performing companies such as Nvidia, Tesla, and Meta Platforms.

Michael Burry has once again expressed a negative view on the markets. The famous investor, known for his role in the movie "The Big Short," is pessimistic about China. His company, Scion Asset Management, has sold its shares in JD.com and Alibaba, two prominent Chinese companies. Additionally, Burry has decided to exit his investments in PacWest and First Republic, regional banks. Furthermore, he revealed his strategy of betting against the S&P 500 and Nasdaq 100, causing a significant stir on social media platforms.

Andrew Ross Sorkin, a renowned writer and owner of DealBook, holds the esteemed role of being both a columnist and an editor at large. In addition to this, he can be seen co-hosting the popular CNBC program "Squawk Box" and is widely recognized for his book "Too Big to Fail." Furthermore, Sorkin played a vital role in the creation of the widely acclaimed television show "Billions" on Showtime.

Ravi Mattu is currently the managing editor of DealBook, stationed in London. Prior to joining The New York Times in 2022, he had worked at the Financial Times and had occupied several high-ranking positions in Hong Kong and London. To learn additional details about Ravi Mattu, continue reading.

Bernhard Warner became a part of The Times team in 2022, taking on the role of a senior editor for DealBook. Prior to this, he worked at Fortune as a senior writer and editor, with a specific focus on business, the economy, and the markets. For additional information on Bernhard Warner, please continue reading.

Ephrat Livni provides insights from Washington regarding the overlap between commerce and regulations for DealBook. She has previously served as a skilled correspondent at Quartz, with a focus on legal and political matters, and has experience in both public and private sectors of the legal field. To learn additional information about Ephrat Livni, please continue reading.