Earlier this morning came a piece of news which was to say the least eagerly awaited. As more and more data has emerged from China’s economy then more and more fears have arisen about a growth slow down. As China has been a main engine of world economic growth in recent times and a heavy consumer of commodities this poses problems way beyond her borders.
China’s National Bureau of Statistics discussed these as follows in its press conference.
The first quarter GDP growth of 7.7%, and in the first half growth of 7.6%…. And second quarter growth was 7.5% , down only slightly, five consecutive quarters of economic operation in 7.4% -7.9% range, operation is relatively stable.
The message everyone was supposed to take was one of stability which is emphasised again here.
we can see that the whole economic operation is smooth
This conveniently ignores the fact that reported Chinese economic growth has been on a downward trend for a while now. But even more conveniently it is exactly in line with its target for 2013. However for all the official talk of stability and smooth operations if we project further declines for the rest of 2013 then the target will be missed to the downside which would be for the first time for 15 years. Amazing is it not how centrally planned economies manage to apparently hit their targets so regularly?
This would be a particular challenge now as the quarterly growth rates in 2013 have been 1.6% and now 1.7% which if repeated in the second half of the year would leave economic growth in 2013 below 7%.
This may have been why China’s Finance Minister Lou Jowei talked of 7% growth and went onto suggest thst even 6.5% growth would not be a “big problem” although the official news agency Xinhua converted such talk to this over the weekend.
There is no doubt that China can achieve this year’s growth target of 7.5 percent.
What about trade data?
It was only last week that China had posted disappointing numbers for her trade position. The data for June showed a year on year contraction in export volumes of 3.1% and a contraction in import volumes of 0.7%. So the impact on economic growth would have been negative. Also such numbers provoke thoughts about how such an apparently fast growing economy could import less.
As ever one month’s trade figures are (very) unreliable but such numbers will have everybody scanning the next few releases. If you believe that the trend is indeed your friend then there is only one way of interpreting this.
It (foreign trade) grew 13.5 percent in the first quarter year on year and 4.3 percent in the second quarter, but just 0.3 percent in May and now a 2 percent fall in June.
How did China grow so fast then?
If we look into today’s numbers we see that exports/trade contributed only marginally to economic growth in the first half of 2013.
Net exports of goods and services GDP growth rate was 0.9 percent , so that GDP rose 0.1 percentage points (from this component).
That only leaves 7.4% of the 7.5% to explain! Stepping into the gap was a surge in investment which was as convenient as it was strong.
Gross capital formation on GDP contribution rate is 53.9 percent , creating GDP growth of 4.1 percentage points (from this component).
The remaining component was consumption which contributed 3.4% to the GDP growth.
So just as the impact of trade dipped away (from 1.1% to 0.1%) on economic growth then investment stepped up and took up the slack. Good this command economy business is it not? Although many may be reminded of this from the man who is now Prime Minister. From Wikileaks.
All other figures, especially GDP statistics, are ‘for reference only,’ he said smiling,” the cable added.
Mind you that critique also applies these days well beyond the Chinese borders I think.
Industrial Production and Retail Sales
This confirmed the downwards trend evident above. From Xinhua
In June alone, the industrial value-added output increased 8.9 percent year on year, decelerating 0.3 percentage points from the growth in May.
I guess it will take some time for all the extra investment to bear fruit and such a number compares with a 10% growth rate for 2012.
By contrast retail sales put in a stronger performance.
In June alone, retails sales totaled 1.88 trillion yuan, up 13.3 percent year on year, marking the fastest growth since the start of the year.
This means that they have risen at an annual rate of 12.7% in the first half of 2013.
However this is in spite of the fact that income growth is weakening as this question at the press conference identified.
we know that this year China’s urban residents per capita income growth is 6.5% , but in the last year was 9.7%, so there has been a 3.2 percentage points fall.
The questioner goes on to point out that previously income growth had exceeded economic growth but was now below it. This has clear implications for both retail sales growth and overall economic growth going forwards as well as making us wonder exactly how retail sales growth is so strong.
What about electricity consumption?
As doubts have spread about the official data, more and more eyes have turned to the power consumption figures to see if they are contradictory. Here is today’s release from Xinhua.
June, total electricity consumption 438.4 billion kwh, an increase of 6.3%…… January to June, the national total electricity consumption total 2.4961 trillion kwh, an increase of 5.1%.
As we note that these are below the economic growth numbers we also need to remind ourselves that these are also official numbers.
This has been a troubled area for China as I discussed on the 24th of June. We will have to see how this plays out but Friday’s release from the People’s Bank of China did hint at what is going on.
June, the inter-bank lending market weighted average interest rate of 6.58 percent, 3.66 percentage points over the previous month; pledged repo weighted average interest rate was 6.82%, 3.81 percentage points over the previous month.
This is pretty much how the imperialist capitalist lackeys plunged themselves in to a credit crunch. The numbers have improved so far in July but this is a watch this space situation going forwards and the 3 month Shibor is at 4.67%.
It is important to review these numbers in the light of the fact that both China’s growth numbers and her trade data would be grasped with both hands by virtually any other economy in the world. But that does not mean that it is plain sailing. Indeed viewers of BBC’s Top Gear television programme were reminded of some of the issues. As they zoomed around in high speed sports cars in a petrolhead manner in Spain they found an empty airport,a road to nowhere and empty housing estates. Such a theme also applies in China which returns me to a theme of this blog. Whilst producing something is counted in economic output it is my opinion that actual use of it should be factored into the statistics. Otherwise not only is there economic waste but the “growth” is misleading.
As for the rest of 2013 and into 2014 I expect there to be more growth slow downs in China which will affect those dependent on it. Which returns us to the question of where world economic growth is going to come from?