With February’s economic indicators starting to come in, we can get a better measure of the extent to which China’s economic growth is slowing down. With New Year falling in February last year but January this, it takes looking at the data from the first two months of the year together to smooth out that seasonal factor, which inflates the consumer price index, lowers industrial production and skewers the trade figures (though February’s trade deficit is such an outlier that it bears further inspection, especially the leap in oil imports).
What emerges from the combined monthly figures undoubtedly shows a slow down, but not a collapse. Neither is scarcely news, but we are looking for degree. Take value added industrial production; up an average of 11.4% in the first two months of this year over the same period a year earlier. That, though, is the slowest growth rate in nearly three years. Fixed asset investment, the driving force of growth, was up 21.5% year-on-year in the first two months of the year. That is down 2.3 percentage points on a year earlier and the slowest increase since 2002. Retail sales were up an average 14.7% year-on-year. In December they were up 18.1% year-on-year. Vehicle sales were down 6% year-on-year in January and February.
Those last two numbers bear continued close observation. They hint at weak domestic demand at the same time export demand is weak in the face of the sluggish growth in the U.S. and European economies. With inflation averaging 3.9% across January and February, well down from its 6.5% peak last July, real domestic interest rates are still negative.
The best proxy of the true growth rate of China’s economy may be power generation, which was up 7.1% year-on-year in the first two months of the year. That is skirting close to the minimum that is politically acceptable; indeed 7.5% is the official target for the year, though the current-five year plan calls for an average annual growth rate of 7%. With inflation falling, but not fully under control, ditto fixed asset investment and real estate prices, and nagging doubts persisting about the quality of the banks’ loan books, policymakers still must be cautious in further monetary easing.