China's Stable Malaise The Chinese economy remains relatively stable these days - with neither an acute trade-war driven deceleration nor the type of big bang stimulus and restructuring so hoped for in the West.

In recent days we’ve gotten a slew of data on the Chinese economy which confirms that it continues to hold up pretty well even with the heightened trade tensions with the US. Exports, production and demand remain all fine with no signs of acute slowing.

But there is hardly any sign of the beautiful deleveraging or the type of stimulus needed to either deal with the enormous private debt overhang or drive needed rebalancing of the economy. If anything the Xi administration remains committed to austerity at least in philosophy.

The result is the Chinese economy is stuck in a bit of a limbo. Not quite weak enough to force the type of big stimulus seen in 08 and post covid, but not quite strong enough to be an engine driving global growth. Stable malaise remains the policy objective and reality.

The data released recently confirms this basic picture. Chinese exports, at most risk of the trade conflict, have held up pretty well in recent months with the data released earlier this week showing growth of around 6%. Not so bad for a trade war.

A big reason for the stability is from the ability to shift trade away from the US toward other Asian partners and Europe. Of course some of this is likely transshipments, but it also just reflects targeting different export destinations for over supply.

It is notable that June export data to the US did decline less rapidly than during the height of tariffs in May, suggesting some thawing of the export environment as tariffs stabilized at the 55% headline rate down from 145% at peak.