China's economy isn't 'collapsing' like markets suggest: Expert

China's economy continues to face pressure as various industries struggle to recover from economic troubles. China Beige Book International Managing Director Shehzad Qazi joins to discuss the health of the Chinese economy.

Qazi notes that while China's economy started 2024 strong, there has been "a mild slowdown," although he emphasizes that the roof is not "collapsing" on the nation. He points out that data has indicated "a modest recovery" throughout the year, rather than the crisis that some markets have been suggesting.

"As the policy environment changes, I think we could see fresher companies coming under crackdowns," Qazi explains, referring to Alibaba's (BABA) emergence from a three-year regulatory overhaul on Friday which isn't suggesting a change in China's approach to business.

Regarding US-China trade war concerns, Qazi notes that these can manifest through various mechanisms such as tariffs, export controls, investment controls, and more: "It just depends how sophisticated and how aggressive the person operating the White House wants to be."

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This post was written by Angel Smith

Video transcript

You're out with the latest report as well on the state of China's economy which showed revenues, profits, hiring wages as well.

In August all slowing from a year ago.

What is the latest data showing you?

Yeah, look, the Chinese economy started off on a very strong note, I think at the beginning of the year, but it was looking pretty clear that from that point onwards, there was going to be some moderation and in August, you're certainly seeing this mild slow down.

Now that said, you know, the roof isn't exactly collapsing.

And I think the market has been way too pessimistic on China.

The data somewhat boring.

I'd say you're still getting a modest recovery through the course of the year.

So we're not anywhere near a crisis.

But if you're looking for a rally, a rally in the equity market, you're not going to like the figures that just came out.

One of the most well known equity market names that's attached to the Chinese economy is Alibaba quite frankly.

And there's been a little bit of an about face that we've seen between their relationship with government and now uh making it through this this period where they were under high scrutiny.

What does that signal to you about how the region is approaching publicly traded entities and just business as a whole?

Yeah, look, I think the idea was we're going to cut Alibaba down to size.

That's what she and, and company wanted to do.

And I think they feel like they've done that for now and maybe forever.

This does not, I think spell a change in the overall approach towards business and in the overall approach towards regulation writ large as the policy environment changes there, I think we could see fresher companies coming under crackdowns, we could see the national security lens that they've taken about, you know, every company, every sector that remains dominant in China.

So policy risk is, you know, perhaps receding, it's not going away.

What does that mean for Bytedance?

Then look by 10, they made it clear they're not going to let them sell the algorithm, they're gonna maintain total control.

Tiktok is controlled by the Communist Party.

That's the, that's the fundamental reality.

What does a trade war with China look like?

What is it like?

Frame that for us?

It can take a couple of different shapes.

First of all, you've got the tariff war, which is I think the most blunt instrument you can use, right?

Come up with anything what is made in China, put a tariff on it.

So it could be sector wide, industry wide, it could affect a lot of goods.

Then you get to the more sophisticated parts of it, which is where you start getting into things like export controls.

You can get even more aggressive and sophisticated and do things like real investment controls, work with Congress on things like raising de de minimis rules as they affect packages coming in CN and T packages that come in today.

Uh So it just depends on how sophisticated and how aggressive uh the person occupying the White House wants to be.

Do you think we get to the point where us companies, I think about a Walmart operating Sam's clubs in China?

I think it's Starbucks that they somehow get kicked out of the country.

Uh Look, anything is possible.

Nationalization is even a bigger risk.

Those companies have decided that they are in China for China forever.

And I think the real goal is, how do you bifurcate that?

How do you let American companies and foreign companies work within China?

So long as the Communist Party allows them to while protecting national interests, core national interests.

That's a big debate in DC.

And then, you know, people are still trying to figure it out.