Despite a Strong Yuan and Booming Exports, China's Economy Is Festering Beneath the Surface [Weekend Money]

Fixed Asset Investment Down 6.7%, Youth Unemployment at 17.9%
Government Cuts Subsidies Amid Rising Debt
Downward Pressure Expected if Global Economy Slows

Despite the recent appreciation of the yuan and strong export performance, there is growing pressure on China's economy due to weak domestic demand and slowing growth. The Chinese government is rolling out an "all-in" strategy by pouring resources into exports and the artificial intelligence (AI) industry, but analysts say that severe K-shaped polarization makes it difficult to remain optimistic about the future economic trend.

According to iM Securities on August 29, China's key domestic indicators are currently at their worst levels since the pandemic. The property market continues to decline, and the growth rate of fixed asset investment, which had previously driven economic expansion, fell to -6.7% year-on-year in July. The growth rate of retail sales, reflecting consumer spending, was only 0.6%, while youth unemployment surged to 17.9%, reaching its highest level in a year.

As escaping from sluggish domestic demand becomes increasingly difficult, the Chinese government is focusing all its efforts on boosting exports and fostering the AI industry. In fact, as imports in China's high-tech sector have soared, South Korea's semiconductor exports to China are also rapidly increasing.

However, there are signs of change in the way China is nurturing its AI sector. With the surge in government debt after the pandemic, China has hit a limit in providing subsidies. As a result, it is encouraging large AI and semiconductor companies, such as Changxin Memory Technologies (CXMT), to raise funds by pursuing initial public offerings (IPOs) and tapping external capital markets.

Park Sanghyun, a researcher at iM Securities, noted, "The Chinese economy is countering the risks of domestic recession by relying on an all-in approach to exports and AI investment, but it's difficult to view the future economic cycle in a positive light." He further explained, "If there is a slowdown in the global economy or a loss of momentum in the AI investment cycle, the pressure on the Chinese economy to slow down could increase even further." He added, "It remains to be seen whether China's AI industry can gain an advantage over the U.S. AI sector, and unlike in the past, whether AI companies' capital raising via IPOs will lead to successful outcomes is still uncertain."

This content was produced with the assistance of AI translation services.