BEIJING, CHINA – OCTOBER 24: Chinese President Xi Jinping vote at the closing of the 19th Communist … [+]
China’s economy continues to look wretched.
We know this because the country’s steel production continued to drop for yet another month. It fell 6.4% in July, and is down 6.4% for the first seven months of year, according to new data from the World Steel Association.
For years China has been the world’s largest steel producer with output of 1.3 billion metric tons of the metal in 2021, or more than half of global production. In other words, it’s the world’s major producer.
That production also can tell us something that other indicators cannot. Month-to-month changes in Chinese steel production help us get realistic a read on the health of communist country’s economy. That’s important because China’s official government economic data has a reputation for being more aspirational than actual.
What we do know for sure is that steel is a vital component in two of China’s key industries: manufacturing and real estate construction. When steel production is down its likely that one or both of those industries is in trouble.
The data can also tell us that this is pretty much a China problem not indicative of a global mess.
When we put the Chinese production pullback in a broader context among the top ten global producers only two countries suffered a worse drop in July. They were Russia (down 13.2%, and Turkey off by 20.7%. The former’s economy is getting sapped by western sanctions following its invasion of Ukraine. The latter has long been an economic basket case caused by misguided government policies.
Should we worry about China’s continued economic weakness? Probably so, but not for the direct impact of the world economy. As the world steadily weans itself off the countries exports in favor of sourcing goods from other countries, China’s economy may weaken even further.
Peter Tchir of Academy Securities, writing in a recent report, puts it this way:
Put simply, as China’s economy slumps the Chinese Communist Party may want to boost domestic support by launching an attack on Taiwan. The CCP has long held the view that Taiwan is a rouge province that needs to get reunited with the mainland.
That might sound crazy, but it is exactly what happened in 1982 when the Argentina’s military junta decided to invade the Falkland Islands, a British territory off the coast of South America.
Let’s hope China doesn’t make the same decision.