Demodulation signs and structural adjustments in China’s circular economy

■ The economic downturn in China in July continues, but signs of a demand cycle for cutting-edge products have been confirmed.

■ Economic measures support the current economy, but structural changes are taking place in international capital flows. 

Today, China's main economic indicators were announced, and the results of July's economic indicators were roughly released. The growth rate of industrial production (up 3.7% year-on-year), retail sales (up 2.5% year-on-year), and fixed assets investment (excluding rural areas, up 3.4% year-on-year at the beginning of the year) slowed down and was also significantly worse than last month. Focusing on domestic demand projects such as household consumption (retail sales), it is confirmed that the economy remains sluggish. In the trade statistics released last week, the reduction rate of exports (a year-on-year decrease of 14.5%) and imports (a year-on-year decrease of 12.4%) has expanded compared to last month. However, the stagnation of trade activity has shown a significant decrease in exports, such as a decrease in the decline in conversion and integrated circuits. This has always been the case for mobile phones and components, and signs of a cyclical bottoming out of foreign demand for cutting-edge products have also begun to be confirmed. The Chinese government acknowledged at the Central Politburo meeting on July 24th that domestic demand is sluggish and facing debt problems, and stated that it will increase its support for creating domestic demand and the recovery of the real estate market. Based on this policy, on July 31st, the National Development and Reform Commission of China issued 20 comprehensive consumption expansion policies in 7 areas, including stabilizing large-scale consumption of new energy vehicles and residential buildings, expanding service consumption, promoting rural consumption, and exploring the next generation of consumption in digital green areas. Due to the economic structural reform proposed by the Xi regime under the "socialism with distinctive characteristics", it is expected that the expansion of expenditures will be focused on targets rather than large-scale economic measures to compensate for insufficient demand, which will help alleviate economic adjustment in terms of circulation. On the other hand, structural adjustment pressure is expected to continue in the future. The strict export management of some rare metals (gallium and germanium) announced by China in July will apply from August 1st. On August 9th, the United States announced the strengthening of investment restrictions in cutting-edge technology fields to China, further intensifying the US-China confrontation regarding economic security guarantees. On August 13th, the State Council of China issued 24 guidelines on promoting tax incentives and rights protection for overseas enterprises' investment in China. However, given that direct investments in China have continued to experience capital outflows since the July-September 2022 quarter, and irreversible structural changes such as supply chain restructuring in European and American countries have begun to occur, the effectiveness of the opening-up policy seems limited. In China, the corresponding policies for the off-balance sheet debts of local governments are conveyed in the words of relevant personnel. Although concerns about a rapid economic slowdown have been alleviated in terms of circulation, the conditions for medium to long-term economic downturn seem to have been in place during Japan's balance sheet adjustment process in the 1990s.