Home Kuo’s Smart Take Smart Thought Of The Week: Renminbi

Smart Thought Of The Week: Renminbi

Did you notice how China very cleverly deflected attention away from the dire state of its own economy by getting everyone to focus on what it plans to do in Hong Kong?

The trick worked a treat. Every man and his dog has been so preoccupied by those anti-sedition laws, which are designed to muzzle protestors in Hong Kong, that they have missed the bigger story.

It was a clever ploy that is almost Trumpian in nature.

In fact, it even worked on catching he attention of the “deflector in chief”, himself. The ruse must be thanks to those long telephone conversations between the two frenemies. The master has taught his student well.

But there is no getting away from the facts. China’s economy is in a mess. It is so bad that its bean counters were not even able to put a number on its own economic growth for 2020. Just think about it for a moment….

…. We are now almost halfway through the year. And yet it cannot – for the first time since records began in 1990 – gauge how much smaller its economy could be in six months’ time.

Perhaps it has been able to estimate the economic shrinkage for this year, and it does not like what it sees. Or, maybe, it does not want anyone to know what it has discovered….

…. In the first quarter of 2020, China’s economy shrank 6.8%. So, it would take a Herculean effort to even get the economy back to where it was at the start of the year.

Meanwhile, China has another problem on its plate – an even bigger one than its shrinking economy. It is the level of unemployment that could continue to mushroom.

The exact number of people out of work is unquestionably politically sensitive because it poses a massive threat to the authority communist party.

The official jobless number is 6%. But others think it could be much higher.

One Chinese brokerage firm was even, reportedly, forced to retract an analyst report that estimated the unemployment rate could be more than three times higher at 20%. In other words, as many as 70 million Chinese workers could already be jobless.

That is a huge number of disgruntled people who believe that the communist party can walk on water. China needs them to continue believing it still is a miracle worker.

So, it needs to prevent a health crisis, which has already turned into an economic disaster, from stoking social unrest.

And the best way is to fill people’s pockets with renminbi. People rarely grumble when their pockets being stuffed with cash. They also go out and spend it!

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Disclosure: David Kuo does not own any of the shares mentioned.

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