As we move into 2013 and economic growth is struggling in the old world of Europe more and more eyes will turn to other lands in the hope of finding a better performance elsewhere. One area where many immediately look is China who for several years now has borne much of the burden of hopes for economic growth and progress. The catch is of course that no economy can continue to perform such a role at such levels of economic growth without a clear danger being overheating of her economy. Also as we examine her economic situation there are genuine questions about the state of play there.
Commodity Prices
As China has been something of a vacuum cleaner or hoover for many commodities we can learn something from their price behaviour. In particular the metals sub index (Copper,Lead, Steel,Tin and Zinc) compiled by the Commodities Research Bureau provides some insight. We see that it peaked at 1121 in April 2011 in the midst of the commodity super-boom but is now at 920 so some 18% below its peak. But this hides a deeper fall to 778 in August last year. So if we use this as our guide we have two alternatives which is that China weakened but is now recovering or that commodity prices overshot as they are wont to do.
If we look at the oil price (Brent Crude) we see that it has been drifting lower recently and is now at US $110.13 per barrel or 12% lower than a year ago. We also see that it fell by over 4% in February and whilst there are no doubt other factors at play such as economic weakness in Europe and the growth of fracking based output in the United States we can see that it is unlikely there have been surges in demand from China.
What is the latest data?
Retail Sales
Over the weekend the Chinese National Statistics Bureau told us this.
In the first two months in 2013, the total retail sales of consumer goods reached 3,781.0 billion yuan, up by 12.3 percent year-on-year ( The real growth rate was 10.4 percent).
In case you wonder why they have figures for two months it takes out the impact of the Chinese New Year which this year was in February and last was in January. Once we look through that we see growth numbers below any seen in 2012. Indeed last year we saw 15.2% growth which was also the number for December. So our immediate thought is of a slow down at what is something of a peak period.
If we look into the detail catering was the weakest number and gold bugs will be pleased to see that gold and silver demand (for jewellery etc.) was relatively strong at 14.3% growth.
What about Industrial Production?
In the first two months of 2013, the total value added of the industrial enterprises above designated size was up 9.9 percent year-on-year 0.4 percentage points lower than that in December 2012.
So weaker than December and let me help them out by pointing out that it was 2% lower than this time in 2012 when the annual growth rate was 11.9%. Also tucked away in here was a reference albeit indirect to a number which many use as a guide to the true state of the Chinese economy.
Electricity Production
the production and supply of electricity and heat, 4.7 percent….Of this total, the output of electricity was 757.3 billion kilowatt-hours, up by 3.4 percent;
Indeed we see that electricity production was just under 4% lower than at this time last year.
Inflation is rising
There was quite a pick-up in inflation from January’s relatively subdued 2%.
In February, the consumer price index (CPI) went up by 3.2 percent year-on-year.
And we did not have to look far for a major factor in this.
In February, food prices went up by 6.0 percent year-on-year, affecting nearly 1.98 percentage points increase in the overall price level
We also see that producer prices have begun to edge higher too albeit after a period of weakness.
In February 2013, Producer Price Index (PPI) for manufactured goods decreased 1.6 percent, year-on-year, and 0.2 percent increase month-on-month
Actually we may be seeing an interesting mix where consumer inflation leads producer inflation which is an inversion of normal behaviour. If so a slow down as discussed above may be associated by inflation concerns as if the 3.5% inflation target being spread in the Chinese state media is true then I do not think her leaders intended to be so near to it so soon.
Monetary conditions
Rather ominously for a country with inflationary pressure these are loose. Her measure of broad money or M2 rose at an annual rate of 15.2% in February which follows January’s 15.9%. The official view of growth lower than that was this only last October.
China’s broad measure of money supply (M2) grew at a record speed in September, leading experts to believe that the country’s pro-growth policies are working
Oh dear “experts” again! It is a shame we do not get to quiz them on apparently slowing growth and rising inflation. Also we see that the monetary expansion grew afterwards with implications for 2013. Indeed there may be other problems here as highlighted by People’s Bank of China Governor Zhou Xiaochuan on Friday.
The high ratio of money supply to gross domestic product in China means risks are excessively concentrated in the banking sector
Ah excessive risks in the banking sector,what could go wrong?
The property sector continues to boom
The total investment in real estate development in the first two months of 2013 was 667.0 billion yuan, up by 22.8 percent year-on-year in nominal term, 6.6 percentage points higher than that in the previous year.
The what can go wrong theme gets a further boost as we think of banking excesses and a construction boom. Still in centrally planned China everything will be kept under control won’t it?
Looking forwards:business surveys
The official purchasing managers index for manufacturing in China dipped to 50.1 or just above the no-changer mark. This was down both on January (50.4) and the February average (51.9). Whilst the same index for non-manufacturing was much better at 54.5 it showed a sharper fall on January’s 56.2 and on its February average of 57.3.
So the future does not look too bright for an economy used to fast economic growth.
Comment
It was only in the middle of last week that we were told that China’s exports had risen by 21.8% in February compared to a year earlier. As this was a month which this time round included the Chinese New Year we were left to muse as to whether this was an extraordinary performance or simply extraordinary. On that note an increase of 16.5% in exports to the sclerotic and struggling European Union was the stand-out number whichever theme of the Chinese economy you choose to follow.
Since then the outlook has darkened considerably as relatively weak retail sales numbers back up the 15.3% fall in import volumes in the same period. Also confidence in the numbers presented may be darkened by the way that an export surge appears to have coincided with a fall in industrial production.Also we see that a rather toxic mix of a high credit growth and rising inflation is happening at the same time meaning that there are genuine concerns that the centrally planned Chinese economy may have failed to avoid the mistakes of the imperialist capitalist lackeys.
Mind you if you feel like taking the Matrix blue pill today there is this.
China’s economy has shown clear signs of recovery since the fourth quarter of 2012 and is developing as planned (Shi Zihai, head of the policy research office under the National Development and Reform Commission)
What was that about never believing anything until it is officially denied?
Currency Wars?
Just to mix in my latest two updates the UK pound has fallen by 8.5% against the Chinese Yuan in 2013 so far to 9.25 as I type this.
