Economists believe that China’s post-pandemic boom goes beyond what one can imagine.

Bernard Arnault (CEO of French conglomerate LVMH), briefly surpassed Jeff Bezos, Amazon CEO, as the world’s wealthiest person. This was largely due to China’s desire for luxury goods. This is good news for Arnault but China’s recovery and an increased appetite for luxury goods and raw materials are mixed for the rest.

According to Forbes’ real-time tracking, Arnault’s net worth was approximately $192 billion. Bezos had roughly $188 billion. Although market forces played a part, Arnault’s rise was helped by investors who rewarded LVMH for its strong performance. The company made $17 billion in sales during the first quarter of 2021. This is an increase over last year and above the 2019 figures. The post-pandemic demand for luxury goods from wealthy Chinese customers is a major reason for the revenue boom.

Bain & Company, a consulting firm, noted in a report this month that “China is driving recovery thanks to continuous repatriation of luxury spending and acceleration of domestic consumption on luxury… The desire of China and Chinese nationals to indulge in luxury remains insatiable.”

However, the story that will drive the recovery here and abroad is that of demand for raw materials. This narrative could overshadow the recovery in Chinese consumer expenditures. The global semiconductor shortage has hit Eastern and Western manufacturers. Prices for metals and oil have been rising, which has had a negative impact on profit projections for everyone, from automakers to home builders.

“They are already in a different mindset than the rest of the globe,” Alexis Garatti of Euler Hermes’ macroeconomics said about China’s recovery.

Garatti stated that although producers will feel the effects of higher prices on both sides, the pain won’t be shared equally. He said that we expect a contraction in margin with the European Union feeling a more severe hit due to the Eurozone’s greater sensitivity to price fluctuations and the exposure companies face.

“The important thing is that both China and the U.S. are recovering quickly now. According to David Dollar, a Brookings Institution senior fellow, “So you have the two largest economies in the world rebounding strongly [and] driving up the prices of things such as copper, iron, and lumber.”

He said that “a lot of the rest is not recovering evenly… both the U.S.A and China are recovering tends to drive up prices of some items.” The combination is driving up prices, and that’s affecting both manufacturers on the Pacific side.

One big difference could be a benefit for American economic activity: American home buying has, despite some price-inflicted strains in recent years, generally held up during the country’s transition to a post-pandemic era. Dollar stated that these purchases are a key driver for downstream consumer activity because people who purchase homes often buy furniture and appliances as well as goods and services related to remodeling. “Consumption in America has held up pretty well,” he said. As the economy fully reopens, spending on services has shown signs of stabilizing, as well.

Garatti stated that even with Chinese buyers who are wealthy and eager to purchase luxury goods, there isn’t the same amount of real estate-propelled consumption. He said, “We don’t see, at the moment, a very strong acceleration in consumption.” “To have strong consumption in China, you need a very strong market for housing,” and Beijing is looking to curtail speculation that has inflamed its housing market.

“I would expect luxury goods to boom, but that’s not the same as saying you’re going to have a generally consumption-driven recovery,” said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics.

On the contrary, Kirkegaard stated that China’s fervent consumption of raw materials is not due to a debt-fueled growth model. “Commodity demand… has traditionally been associated with a growth model in China that’s very intensive on investment,” he said. “And this has been a growth model that also has led to a very high level of debt.”

Kirkegaard stated that Beijing will have difficulty maintaining the status quo due to diminishing returns on investment, high corporate leverage, and high levels of government debt. “The rebound in China’s growth is very much driven by infrastructure investments — not by consumption — and in my opinion, it’s driving imbalances in the Chinese economy,” he said.

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