b'Revitalizing the Economy First Year of 12Beijinghastakensomestepstorevitalizeeconomicgrowth.Late last year, the Chinese government announced a 12-year plan Small businesses received tax breaks and interest rates on bankto expand household consumption to drive the economy, which deposits were reduced to encourage consumers to spend morewas met with praise from some economists. Chinas household and save less.spending represents 38% of GDP, well below the global average of But these measures have proven ineffective as consumers con- 68%. tinue to hoard cash and private investments decline. This has givenBut, according to a report published by the Council on Foreign rise to fears of a balance-sheet recession, driven by high levels ofRelations, Sensible though it is, consumption-led growth in Xis private-sector debt rather than fluctuations in the business cycle,China is doomed to fail.according to a report from BNY Mellon. During a balance-sheetOne reason is that it will meet with pushback from constituencies recessiondebtrepaymentisprioritizedabovespendingandthat President Xi Jinping must satisfy, including state-owned enter-investment, which ultimately leads to slower growth. prises, local governments, and the national security bureaucracy. The large housing and construction sectors remain at the heart ofChinese consumers, for their part, will be reluctant to embrace the problem. Many developers remain excessively leveraged andit, said the report, knowing that the leader will bury the initiative have businesses based on outdated growth models, said the BNYat the first signs of worry from the party. Instead, they will hunker Mellon report. Given these factors, it is perhaps unsurprising thatdown, saving yet more of their meager earnings for the expected sentiment in the real estate sector is at the lowest level in decades. hard times ahead.Local governments and corporations in China have accumulatedXi,thereportconcluded,willneverallowaconsumer-led large volumes of debt, often collateralized by real estate and landeconomy to take hold on the mainland. Such an economy requires that have experienced price declines. The high level of debt withinindividualautonomyandfreemarketstorespondtoconsumer the economy is likely to become a headwind for growth in the yearsdemand, which the Chinese Communist Party under Xi has been ahead, said the report, with ever greater amounts of new debtincreasingly unwilling to accommodate.needed to generate each unit of incremental growth. A consumer-centric stimulus package is likely the better alter-Chineseofficialshavespokenaboutexportingtheirwayoutnative to steer China toward economic recovery, than government of trouble, but here, too, they face challenges. Exports have beenconstruction projects that will generate more debt. But a combi-flat this year and declined in Mayby 18.2% to the United States nation of structural and policy impediments and wary consumers notable because Beijing has allowed the renminbi to decline bymay prevent that from happening. That all spells trouble ahead for 7% against the dollar this year, which should have made Chinesethe Chinese economy and its housing sectoras well as for steel exports more competitive.industry demand and production.Top 10 Steel-Producing Countries% Change% Change May 2023 (Mt) May 23/22 Jan-May 2023 (Mt) Jan-May 23/22China 90.1 -7.3 444.6 1.6India 11.2 4.1 56.4 5.7Japan 7.6 -5.2 36.5 -5.3United States 6.9 -2.3 33.1 -3.4Russia 6.8* 8.8 32.1 1.9South Korea 5.8 -0.1 28.1 -0.4Germany 3.2 0.2 15.6 -4.7Brazil 2.8 -5.5 13.4 -8.1Turkey 2.9 -10.4 13.0 -19.1Iran 3.3 8.8 13.0 2.2Source: WorldsteelRanking of top 10 producing countries is based on year-to-date aggregate* Estimated.Back to Contents THE UNCONTAINED 43'