Editor’s Note: The first article in this two-part series, Jim Rogers – Dire Predictions for the US Economy, assesses financial conditions in the United States.
Legendary investor Jim Rogers thinks it may be growing pains, while others believe that China is falling behind. Whatever the case may be, it is no secret that the world’s second-largest economy is unable to shake off a severe case of COVID-19, more than two years after it reported the planet’s first coronavirus patient. From weakening factory activity to a collapse in the real estate sector, Beijing has been grappling with a plethora of issues that might set back the nation’s path to world domination for several years. Is this a buying opportunity, or an indicator that policymakers have gotten drunk on Baijiu?
Jim Rogers: Crisis and Opportunity
The National Bureau of Statistics (NBS) reported that the manufacturing purchasing managers’ index (PMI) tumbled to 49.0 in July, falling short of the market estimate of 50.4 — anything below 50 indicates contraction. The non-manufacturing PMI also weakened to 53.8, while the general PMI dropped to 52.5. The private-sector Caixin manufacturing PMI also declined to 50.4 last month, under economists’ expectations of 51.5.
Meanwhile, July did not offer too much excitement for the Chinese economy. Consumer and producer price inflation rates were higher than expected. The gross domestic product (GDP) growth rate contracted 2.6% on a quarter-over-quarter basis during the April-June period, worse than the -1.5% consensus. Industrial capacity eased to 75.1% in the second quarter. Housing prices fell for the second straight month. However, there were some positive data: Exports ballooned nearly 18%, retail sales advanced 3.1%, and the unemployment rate slipped to 5.3%.
This is in addition to the panoply of developments prevalent throughout the Red Dragon that could impact the long-term economy. Property developer Evergrande has collapsed, the banking system is under threat, multiple cities have reported significant funding shortfalls, and many foreign companies are beginning to shift their companies away from China and into regional neighbors.
Years ago, Rogers famously noted that the 19th century belonged to Great Britain, the United States controlled the 20th century, and China would dominate the 21st century. But with stimulus the only mechanism that could bring the economy out of the doldrums of stagnation, will this century still belong to China?
“Look out the window, and you see what’s happened in this century. I mean, [China has] gone from nothing to the second largest or maybe the largest economy in the world,” Rogers told Liberty Nation, adding that there are going to be lots of problems, much like what happened to the United States before it became the superpower of the world.
“Along the way, we had a gigantic civil war. We had many depressions. We had riots in the street, massacres in the streets. You could buy and sell congressmen. You could still buy and sell congressmen, but in those days they were cheap. You could buy four or five for the price of one,” he added.
Jim Rogers (Photo by Visual China Group via Getty Images/Visual China Group via Getty Images)
Rogers, who is known for finding opportunities when many people cannot, thinks that when problems arise in China, it could be the time to start investing. Considering that foreign direct investment (FDI) surged 17.4% year-over-year in June, according to NBS data, perhaps investors are heeding his advice.
China Versus the World?
Since the global public health crisis began, it seems like everyone has dropped the ball, be it on policymaking or the economy. In addition to lockdowns that ostensibly had little effect on improving outcomes throughout the pandemic, governments and central banks created four-decade-high inflation that will remain sticky and unable to come down as fast as it surged. From the United States to the European Union, the advanced economies have failed their citizens.
Rogers could not think of any country that has done a remarkable job over the last two years, noting that China had been “doing a less bad job because they didn’t print nearly as much money as others.”
While investors will be paying attention to further economic data coming out of Beijing, the financial markets will also monitor the geopolitical front, particularly as it pertains to Russia and Taiwan. As has been the case for many years, when China sneezes, the rest of the world catches influenza. But whether this will be a permanent phenomenon or not remains to be seen. Big trouble in little China or big opportunity in little China? Perhaps only the fortune cookies will know.
