How much stock should we put in the talking up of the economy by leading Chinese officials? Given that they have little control over the biggest short-term driver of the economy, external demand, that they are running out of time for monetary policy, such as it is, to work before the imminent leadership transition, and that reverting to the old standby of infrastructure spending risks undoing both the hard-won cooling of the property market and the long-term rebalancing of the economy, the answer is probably not much.
Corporate profit reports probably tell a truer story. It is not a comforting tale. Take these two bellwethers:
- Cosco, operator of the world’s largest bulk cargo fleet, this week posted a loss for the six consecutive quarter and said the outlook for its industry remained bleak as a result of a gut in shipping capacity; i.e. more carrying space of inbound cargoes of raw materials and outbound ones of exports than there is demand for; and
- Baoshan Iron and Steel, the country’s largest listed steelmaker, expects the third quarter to be “the most difficult” of the year, even though it expects to stay in the black just about.
The economy might be getting close to the end of its slowdown in growth, but it looks as if it is going to be bumping along the bottom for some months yet, regardless of the political imperatives to hand over an economy delivering the sorts of growth rates that justify the Party’s legitimacy to rule. But stimulate now with infrastructure spending and that risks setting back the long-term changes to the economy that the Party will need to pull off if that legitimacy to rule is to outlive the next generation of leaders.