Henan displays China's economic cracks all at once

3 minute read

Medical workers in protective suits collect swabs from residents during a citywide nucleic acid testing following cases of the coronavirus disease (COVID-19) in Zhengzhou, Henan province, China, January 5, 2022. cnsphoto via REUTERS

Register now for FREE unlimited access to Reuters.com

HONG KONG, July 6 (Reuters Breakingviews) - China’s central province of Henan is showing all the country’s economic cracks at once. It is home to nearly 100 million people, hosting a vast Foxconn (2354.TW) factory that assembles most of the world’s iPhones. It also churns out embarrassing headlines.

The region was once one of the poorest in the country. Regardless, today its $900 billion economy is the size of the Netherlands, and it posted a flurry of inspiring indicators in May. Industrial output rose 3.4% compared to a tepid 0.7% nationwide; fixed-asset investment is up 10.5% in the first five months. It aspires to grow gross domestic product by 7% this year, 1.5 percentage points faster than the central government’s target.

On the ground, things look less rosy. It suffered devastating floods last year, and now a heat wave. In April, depositors in four rural Henan banks discovered they could no longer withdraw funds. When they visited to complain, local authorities tampered with their Covid-19 tracking apps to make their health codes turn “red”, indicating they had been exposed. They were quarantined, then kicked out of town.

Register now for FREE unlimited access to Reuters.com

Some officials were disciplined, and a new finance regulator was parachuted in, but nobody appears to have gotten their money back. The episode highlights two concerns: that a crisis could be brewing among the country’s nearly 4,000 rural banks, and that intrusive Covid tracking technology will be used to cover up mistakes.

Henan also illustrates the difficulty Beijing is having stabilising real estate demand. Central China Group, the province’s biggest developer, in June offered to accept bushels of wheat or garlic for down-payments. Henan, like many parts of the country, is full of pre-sold projects that indebted developers can’t complete. When investors complained to local authorities about one of them, their health codes turned red too.

Regulators don’t want bureaucrats from the hinterlands to make a mockery of their statistics, misinforming decisions and provoking distrust in epidemic control measures. In May, Beijing punished officials, including some in Henan, for falsifying economic data and forcing companies to over-report revenue and profit. read more

The International Monetary Fund thinks even 4.4% GDP growth could be a stretch in 2022. Yet President Xi Jinping reiterated late last month he still wants the country to hit the 5.5% target despite consumption-crushing lockdowns and war in Ukraine. That will encourage officials to fake it until they make it — or just fake it.

(This article has been corrected to remove reference to Henan region.)

Follow @ywchen1 on Twitter

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

Henan province’s finance bureau said on July 1 that relevant departments are working to find solutions after four rural banks in Henan blocked online and mobile cash withdrawals for clients, leaving many customers unable to access funds.

Henan’s statistics bureau said in a release dated June 17 that the province’s primary economic indicators outperformed national averages year-to-date. Fixed-asset investment rose 10.5% in the first five months of the year from the same period in 2021, compared to 6.2% nationwide.

Register now for FREE unlimited access to Reuters.com
Editing by Pete Sweeney and Thomas Shum

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

Thomson Reuters

Beijing, crunching economic data, interviewing high-level officials, and travelling to far-flung provinces to visit factory floors and talk to local shopkeepers. Before that, she spent nearly three years in Santiago, Chile, where she built a trade news website reporting on the produce industry – and developed Spanish as a third language alongside Mandarin Chinese and English.