Does the Recent Hongkong Shopping Drama Indicate Fundamental Mainland Chinese Economic Weakness?

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By Jacob Maslow

hong kong aerial viewThe problem with divining truths from Mainland Chinese government reports about its economy is that it is truly an art form. You not only have to learn how to read between the lines, but you also have to look at the broader picture. You have to also look at circumstantial evidence. On its face, Mainland Chinese economic figures are nothing short of impressive. Who can argue with over 20 years of robust economic growth?

In fact, the weakest news coming out of China recently is news that its GDP growth didn’t grow as robustly as before. Notice what is wrong with that news? It didn’t say that the economy stopped growing. It didn’t say that the economy contracted. The worst news to come out of China was that it isn’t growing as fast as it should. That just shows you the high level of economic growth that, at least as far as official figures are concerned, China is enjoying.

It is very easy to drink the Kool-Aid regarding the rosy Chinese government economic figures. However, there are a lot of troubling signs in the mix. There are millions of Chinese houses that go unsold. Moreover, there is the looming threat of shadow lending where government, quasi-government, and quasi-private lending institutions make all sorts of off-the-book loans. Put all these factors together and you might have an economic implosion that would spill over not just in Southeast Asia and the broader Asian economy, but to all four corners of the world. This is why it is a very good idea to take Chinese government economic figures with a grain of salt.

One key piece of circumstantial evidence of economists and analysts who are serious about truly understanding the real estate of the economy in China is what is happening in Hongkong. In Hongkong, local residents are protesting the huge flood of shoppers from Mainland China who buy up everything from luxury goods to baby food. These Mainland shoppers are blamed for distorting the local economics of Hongkong. Why is this a big deal? First, Hongkong’s prices tend to be lower. This is especially true when it comes to the price of iPads, Apple computers, and other electronic goods. However, across the board, Hongkong products tend to be cheaper because of their open economy and their focus on higher end merchandise.

The fact that Mainland Chinese shoppers are going to Hongkong to snap up good deals belies the long-standing official Chinese government claim that prices are lower in China. What does this mean? This means that the real inflation rate in China is so unmanageable that Chinese Mainland shoppers have to get out of the country to Hongkong to find good deals. If we can’t trust official Chinese inflation figures, this may point to a worse-off economy than officially portrayed.

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