Changes in electricity consumption are a rough and ready proxy for GDP growth. In the first five months of this year, China’s electricity consumption grew by 5.8%. In the same period last year, it grew by 12%. To this Bystander that feels like a better measure of the extent of the current slowdown than the official GDP numbers.
One other irregular but related measure of economic activity is how much coal is stacked up at the docks. China generates more than two-thirds of its electricity from coal. There is a lot of it right now. Coal stockpiles at China’s largest coal port, Qinhuangdao, reached 8.8 million tonnes earlier this month, up from 7.8 million tonnes at the end of last month and approaching record high of 9.2. million tonnes in November 2008 during the depths of the global financial crisis. Typically, stocks are in the 6 million-7 million tonnes range.
It is a similar story at Hebei’s other coal ports, Huanghua and Tangshan, and at Guangzhou and Fangcheng in the south. In all there are around 20 million tonnes of coal with nowhere to go. The six large power generators in eastern and southern China now have enough coal stockpiled for more than a month’s generation.
There are silver linings to the 8.1% first-quarter GDP growth China has just announced, it slowest year-on-year growth rate in three years, and below expectations. The first is that growth in the final month of the quarter picked up once the early new year distorted first two months were done. That momentum should carry through into the second quarter, particularly I’d the central bank continues to pump credit into the economy as it started to do again last month. The second is that consumption spending’s share of first quarter growth was a high 76% while that of fixed-asset investment fell to a low 20.5%, suggesting a continuing tilt, albeit at slight one, towards rebalancing.
China’s economy continued to slow in the fourth quarter of last year, though not by as much as many economists, if not us, had expected. Gross domestic product rose by 8.9% in October to December, compared to the same period a year earlier, the National Bureau of Statistics announced. The fourth quarter growth was the slowest for 10 quarters, and the first time the growth rate had fallen below 9% since mid-2009. Full-year GDP growth for 2011 came in at 9.2%, down from 2010’s 10.4%. The cooling of the domestic property market and the moderation of demand in China’s Western export markets have taken their toll on expansion, the one intended, the other not.
Policymakers have been pumping credit into the economy since late last year. That is likely to continue–monetary easing by way of a backdoor stimulus. The questions now are how much will be needed to keep a hard landing at bay, and how much can be risked without re-stoking inflation, which, while down from July’s 6.5% peak, is still ahead of the government’s target of 4% for the year, coming in at 5.4% for 2011. The property bubble has been deflated not punctured and still rising food prices remain a concern, the latter being both politically sensitive and the part of the consumer price index least responsive to monetary policy. Ma Jiantang, head of the statistics bureau, warns that inflation could easily reverse this year its fall in the second half of last.
Given that, and the uncertain outlook for the global economy, particularly its European component, Beijing’s policymakers will have to walk a fine line, a task made more difficult politically by the leadership transition now underway. It is also likely to make policymakers and politicians alike more nervous of tackling the changes needed to rebalance the economy in the longer term, away from export- and investment-led growth and towards domestic consumption. If anything, the higher than expected fourth-quarter GDP numbers bolsters the status quo. It will reinforce the view of the economic conservatives that it is better not to mess with the tried-and-tested mechanism of stimulating the economy via new loans from large state-owned banks to equally politically reliable large state-owned enterprises, as it appears to be forestalling the immediate danger at hand.
The World Bank has raised its forecast for growth in China this year to 9.1%. In March the bank had forecast 9.0% GDP growth. But it sees growth slowing next year to 8.4% against the background of a slowing global economy. That will also put the brakes on regional growth already hit by the flooding in Thailand that has disrupted manufacturing supply chains.
In its semi-annual regional economic outlook, the bank highlights the Chinese economy’s vulnerabilities to the debt crisis in Europe and the heavy endebtedness of local governments at home, which it says may be exacerbated by the central government’s success so far in dampening the property bubble. “Policymakers will need to walk a fine line guarding against the short-term risks to growth and the lingering vulnerabilities associated with a still buoyant, if not overheated, economy,” the bank says. It also notes that the moderation in inflation gives policymakers scope to manage a soft landing by loosening their monetary tightening.
The bank also says that the slowdown in global growth provides an opportunity for governments to refocus on reforms that will boost growth in the medium- and long-term, including investment to increase productivity and move toward higher value-added production, a task it calls “urgent” for China’s coastal manufacturers. In a clear nod to Beijing, it also says that where investment levels are already high, increasing the quality and efficiency of these investments should be the first priority alongside rebalancing growth towards domestic consumption. To drive ahead the structural changes in China’s economy, the bank repeats its calls for Beijing to focus on completing the transition to a market-based economy and strengthen the national innovation system. The China-specific part of the outlook is here.
China’s economy grew by 9.1% year-on-year in the third quarter, suggesting that policymakers are sustaining the flight path to a soft landing. Quarter-on-quarter GDP growth slowed from 2.4% to 2.3%, but was still faster than the 2.0% of the first quarter.
Not that the economy doesn’t remain vulnerable to external and internal shocks. Export demand from developed countries remains fragile. Europe’s eurocrisis and America’s political impasse, on top of the great consumer deleveraging occurring on both continents, continue to ensure slow to no growth in both markets. Beijing’s attempts to rebalance growth from investment and exports towards domestic consumption should make the economy better able to withstand an external demand shock. This Bystander doesn’t believe the substance yet matches the promise, however.
Meanwhile, the domestic property market and the closely linked quality of banks’ loan books since the stimulus that followed the 2008 global financial crisis remain concerns. Bankruptcies among small and medium-sized enterprises suggests that the tightening of monetary policy since 2010 has slowed growth overall, but unevenly. The sustained 9%+ GDP growth rate suggests that further tightening to tackle stubbornly high inflation remains a possibility, though policymakers may want to give themselves another quarter’s figures to be confident that a hard landing is not in prospect.
China’s latest quarterly growth figures show the economy’s growth is slowing at a measured pace, which should reassure investors worried about the possibility of a bumpier deceleration. Year-on-year growth for the second quarter was 9.5%, down from 9.7% in the first quarter and generally beating analysts expectations. There is always a slightly malleable soft focus to China’s published GDP numbers. While the latest set will certainly reflect the trend of a slowing economy seen in a range of other monthly indicators, they may well be erring on the side of the comforting in doing so. For Beijing’s policymakers, investor expectations are just another component of managing a soft landing for the economy as a whole.
Quite how fast is China’s economy growing? The Financial Times’s Lex column run’s Li Keqiang’s informal but crunchy measures of economic growth, the ones mentioned in a Wikileaked U.S. embassy cable from 2007: electricity consumption, rail cargo volume and bank lending. Lex finds that:
The first two are at full throttle: electricity consumption rose almost 15% last year, 8 percentage points more than in 2009, while freight traffic’s 10% growth over the first 11 months was about double the five-year average. New loans of 480 billion yuan last month, meanwhile, were 10 times their level of December 2007.
Those numbers suggest that the official GDP figures have yet to catch up.
The recently concluded annual economic policy meeting set a growth goal of 8% for 2011 with the inflation target raised to 4% from 2010’s 3% and new bank lending to be held at 7.5 trillion yuan ($1.1 billion), according to local press reports quoting authoritative sources. The broad money supply (M2) is set for 16% growth, a slowing from the 19.5% rate it is running at this year, as monetary policy continues to be gently tightened to tackle inflation. All in all, a modest application of the liquidity sponge, and one which suggests a growth rate target of 8% looks unrealistically low.
Other headline goals for 2011 include creating more than 9 million new urban jobs, keeping the official unemployment rate below 4% and extending the incentives for new appliance sales in the countryside emphasizing the tilt towards social goals, income equality and more domestic consumption that are priorities in the new five-year plan that starts next year.
More from the latest bunch of leaked U.S. diplomatic cables published by WikiLeaks telling us what we already knew but which get piquancy from the detail. In this case, it is a suggestion that provincial GDP data is inflated. Well, hold the phone. The spice comes from the comment being made by Li Keqiang, who at the time, 2007, was Party secretary in Liaoning. He is now a vice-premier in line to succeed Wen Jiabao as prime minister and thus become the man in charge of economic policy.
Like the fictional town of Lake Woebegon created by the American satirist Garrison Keillor where all the children are above average, it has long been a curious fact that no province has let its reported GDP fall below the national average. Local officials’ promotions depend on measures of local economic development. It is no surprise that they add up the numbers in a way that reflects the best possible light on themselves. Nor is that a uniquely Chinese trait.
China’s national GDP figures are more solid, though no economist would pretend they are perfect in either their accuracy or consistency despite efforts to improve them in recent years, many led by Li as it happens. You just can’t manage an economy the size of China’s without accurate data. Nor can China play the bigger role it seeks in multilateral organizations to which it has to report standardized data.
Li, who made his reported comments to the U.S. ambassador at a dinner in Beijing, was talking specifically about his own province but said he got a better sense of its pace of economic growth from monitoring economic activity that could be metered free of a political filter, such as electricity consumption, rail freight volumes and loan disbursements.
The latest GDP and consumer price inflation figures confirm the economy is slowing more slowly than expected, which led to the surprise rise in interest rates earlier this week. The economy grew at 9.6% in the third quarter compared to the same period a year earlier. That is the slowest year-on-year quarterly growth of the year as the government continues to mop up after its stimulus package, but still faster than expected. Consumer prices rose by 3.6% in September compared to the same month a year earlier, the fastest increase in two years and well above the government’s 3% target rate. More expensive food, in the wake of the year’s abnormally bad weather, and housing were the reason.
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At an IMF conference on Monday, central bank governor Zhou Xiaochuan (right) said China faces increasing risks from excessive liquidity, inflation, asset bubbles and non-performing loans in the wake of the global financial crisis. While those may all be true, the latest economic data and the firmness of domestic demand and investment suggest the economy has weathered the crisis and is now getting back to normal. While more interest-rate rises and increases in banks’ reserve-ratio requirements are likely, they will be mainly intended to deflate the persistent property bubble.