China’s economy has surprising bright spots at grassroots amid trade war angst, Credit Suisse surveys show

Yujing Liu

China’s economy is showing unexpected signs of resilience in areas including consumer confidence and lending to private companies, some of the bright spots amid the slowest expansion since at least 1992, according to Credit Suisse.

Over half of Chinese consumers expect their families’ financial conditions to improve in 2020, while more than a third say their employers’ business conditions will be better next year, based on a survey of about 800 people across the country by China Quantitative Insight (CQi), the data-driven analytics team at the Swiss investment bank.

Some 60 per cent of the 75 guarantee and financial leasing firms, considered key facilitators of lending to private firms in China, expect to see an increase in overall borrowing in the final quarter of this year from the preceding three months, according to a separate survey of 400 businesses in dozens of cities. About one-third of small- and medium-sized enterprises reported an increase in the credit queues from lenders this year versus a year ago.

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The findings come as a pleasant surprise given that the world’s second-largest economy has just experienced the slowest economic growth on record at 6 per cent last quarter. A trade war with the US over the past 18 months has crimped exports and slowed manufacturing, while a growing number of companies are reneging on bond repayments.

“The most striking thing from our recent work is the resilience on the Chinese consumer side,” David Murphy, managing director and head of the CQi team, said in an interview with The South China Morning Post. “The fact that people and businesses, such as those guarantee and leasing firms on the margin, are all generally more positive on a forward view in the next six to twelve months, is impressive.”

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Murphy established the CQi team when he joined Credit Suisse in September, after leaving CLSA where he co-founded the China Reality Research team whose grass roots insights on China’s economy gained wide recognition.

The better sentiment on the ground is partially a result of Beijing’s policy push to help the nation’s smaller firms, Murphy said. For example, the State Council in April set a target for the country’s five biggest state-owned lenders to increase their loans to micro and small businesses by 30 per cent this year from 2018.

“There is a lot of bad news flow everywhere, but back to the question of income growth for next year and the business sentiment, those things make it look like there is room for a moderate optimism next year.”

One key concern, though, is accelerating inflation triggered by soaring pork prices, according to Credit Suisse, as 70 per cent of respondents complained prices as being too high. They ranked surging pork prices as a bigger factor than the trade war in affecting their spending confidence.

A doubling of pork prices pushed consumer prices in October to near the highest in eight years, as the outbreak of African swine fever led to culling and dented supply of the meat.

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