Tag Archives: GDP

China As No 2: Don’t Hold The Phone

There is something more symbolic than substantial in China’s elevation to the world’s second largest economy, if it has actually happened as the new Japanese second-quarter gross domestic product figures are being taken to imply. There are so many statistical variables in comparing countries’ nominal GDP from the assumptions made in seasonal adjustment to exchange-rate fluctuations that the exercise quickly become pretty meaningless. Indeed, China, unlike Japan, doesn’t even produce seasonally adjusted figures, while for its part, Tokyo decided earlier this year to revise how it calculates its GDP, in part because its growth had looked so sluggish for so long, it wanted to spruce up the numbers.

China may already have overtaken Japan in nominal GDP terms some time back; some economists argue that China’s statistics are so rudimentary they undercount the economy’s size by as much as 20%. And in purchasing power terms, a more meaningful basis of comparison than nominal GDP, China has been the second largest economy for a decade. But then look at GDP per capita, and China lags Japan (and the U.S. and the E.U.) by a long way.

All that can be said with any certainty is that China’s economy has been growing rapidly while Japan’s has been becalmed, and that that has led to a shift in regional and global economic power in China’s favour. But then we all sort of know that.

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China’s Economy Slowing Nicely

Moves to cool the real estate market and unwind the effect of last year’s stimulus-driven bank lending binge appear to be working on the evidence of the slowing of the economy. China’s GDP grew by 10.3% in the second quarter year-on-year,  down from 11.9% in the first. Over the first six months, the economy expanded by 11.1% compared to the same period a year earlier, the National Bureau of Statistics says.

Beijing’s practice of publishing year-on-year GDP comparisons, and not quarter-to-quarter ones, makes judging the current trajectory of the slowdown more difficult. The unexpectedly sharp slowdown in industrial production, up 13.7% in June, compared to May’s 16.5% rise, allied to the slowing of import growth in the most recent monthly trade figures and some evidence of a fall in consumer confidence, suggest that the economy may well be growing now at somewhere in the 8-10% (annualized) band. That is where the authorities want it.

For as long as it stays in that range there is unlikely to be any policy change, either tightening or easing. There is still a lot of off-balance sheet and informal-sector bank credit to mop up. Outstanding loans at all financial institutions totaled 44.6 trillion yuan ($6.6 trillion) at the end of June, only 2.6 trillion yuan down from a year earlier. The question is how long the wiggle room in that GDP growth band for the authorities to continue mopping will last. The answer may lay as much in what happens to growth (or otherwise) in Europe and the U.S. as it does within China itself.

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China’s Q3 Economic Outook

The eurozone debt crisis has changed the short-term plans of China’s economic policymakers. The second half of this year was meant to be when the stimulus measures put in place for the global financial crisis were unwound  and the assets bubble they produced deflated in measured manner so growth could continue at a brisk but not dangerously rapid pace. Instead they are having to deal with the consequences of the fiscal austerity measures being put in place by indebted European governments.

Those will affect China directly as Europe is the main export market for its manufacturers and indirectly though the brake they will impose on global economic recovery and an increased risk of a double-dip recession. For now, China’s leaders are signaling that they will do what is necessary to sustain growth. That will mean no rush to wind down existing stimulus measures and a readiness to provide more should a slowdown in the growth rate warrant it.

Absent spectacularly negative events in Europe, we don’t think that will be needed. We still expect the economy to grow by 10% in the third quarter, thanks to strong domestic demand, recovery in the U.S. and the revival of world trade. That would be down from the 11.9% growth rate of the first quarter, but still comfortably above the 8% level that sends political alarm bells ringing in Beijing and opens the public spending coffers.

The uncertainty that pervades policy makers will likely mean a pause in their slow but steady tightening of monetary policy already underway. Fixed asset growth is slowing, showing that some of the measures the authorities have been taking to deflate the property bubble are having an effect (the euro crisis has taken care of the bubble in stock prices). The central bank has raised banks’ capital reserve requirements three times this year to rein in the lending that is fueling the property boom. However, new bank lending is proving more intractable than the central bank would like: 3.4 trillion yuan ($498 billion) of new loans were made in the first four months of the year, on track for a number for the full year closer to last year’s 9.6 trillion yuan than this year’s target of a reduction to 7.5 trillion yuan.

Similarly consumer price inflation is bumping up against its targets (3% for the year). Beyond soaring housing prices, food prices are up following a long run of wretched weather in key crop growing areas. Commodity prices are rising worldwide and labor cost pressures are increasing beyond the well publicized wage rises at Foxconn and Honda. Both those trends showed up in the 6.8% increase in the producer price index in April. Key questions are how much of those price pressures can manufacturers pass onto domestic and export customers, and with what effect on sales. None the less, inflation pressures aren’t so great that the central bank needs to raise interest rates again. Given the overall uncertainty over the economic outlook, it has no great desire to do so anyway.

Keeping the economy steady and growing until it is clear what the fallout from the euro crisis is remains the priority. A wild card for the economy is the leadership succession. We are seeing evidence of the behind the scenes factional jostling for position breaking through in foreign policy every now and then. No reason to suppose that couldn’t happen with economic policy, too, especially as the two are now so connected. Arguably with the yuan revaluation issue, it already has.


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Fast Q1 GDP Growth Adds To Pressure On Beijing To Cool Economy

Eleven point nine percent GDP growth in the first quarter is more good news than China’s leadership can use. Though the same quarter a year ago was pretty crummy, amplifying the growth rate, the new number puts pressure on Beijing to let the yuan revalue upwards against the U.S. dollar and to raise interest rates. The latter won’t worry it much. It needs that (and more reining in of new bank lending) to cool off the bubbles in assets such as real estate and stocks as it starts to reel in the stimulus package put in place to see China through the Great Recession. The former, however, is a different matter, and not just because of the strain the issue is putting on political relations with Washington. Beijing increasingly also needs to lower China’s import costs to help curb the risk of inflation. A loosening or scrapping of the peg to the dollar gets more pressing, though Beijing, as President Hu repeated this week for the umpteenth time, will do that at a time of its own choosing.

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China’s Planners Deliver 8% Growth With Some To Spare

The 2009 GDP figures are a triumph for central planning, or at least central spending. At the start of the year, Beijing adjudged 8% growth for the year as necessary for social stability. It delivered 8.7% thanks to the massive stimulus program that flooded into jobs-creating infrastructure investment via state bank lending. Fourth quarter growth was 10.7% — double digit growth like we were back to before the global financial crisis hit.

Now has to come the hard work of mopping up the excess liquidity to prevent inflation taking hold and the swelling bubbles in the property and stock markets from going pop. Consumer prices rose 1.9% in December over a year earlier after falling for much of the year, which will have rung some political as well as economic alarm bells. State-owned banks have been told to rein in new lending, their reserve requirements have been raised and an interest rate rise seems a sure bet. And as we have noted before, there is still the need to turn stimulated demand into the self-sustaining variety.

As for which is the world’s second largest economy after the U.S., this Bystander thinks it is still too close to call between China and Japan. Even stripping out the exchange rate factors, the margin of error, to put it politely, in the calculation of China’s GDP is too broad to provide a definitive answer while the headline numbers (and Japan’s is still an estimate) are still this close. No doubting that it is also a question of when not if, though.

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Eight Percent Growth And Damn The Torpedoes

Beijing has set itself a target of 8% GDP growth for the year and by hook or by crook it will get there.

First quarter growth, announced earlier this week, came in at 6.1%, its slowest pace since quarterly GDP numbers were first made public in 1992, down from 10.6% in the same quarter a year earlier and the 6.8% rate in the fourth quarter. But with much of the rest of the world, read the country’s export markets, in recession, as Prime Minister Wen Jiabao said today at an annual gathering of government and business leaders on Hainan, the economy is better than expected.

That is is not worse is down to the 4 trillion yuan stimulus package announced last November and Beijing’s ability to burst through the credit crisis that has paralyzed lending elsewhere by getting its banks to make loans. Bank lending has soared since the fourth quarter, pouring money into state-backed infrastructure projects. Fixed asset investment, which accounted for more than 40% of GDP in 2008, was up 28.8% in the first quarter (vs, 24.6% in the same period a year earlier).

There seems to be plenty of liquidity in the banking system and the risk of bad loans containable. Consumer spending is holding. Industrial production was reported to be up 5.1% in the first quarter–though industrial use of electricity, usually a good proxy for industrial production–fell 8.4% in the quarter according to the China Electricity Council. Assuming both numbers are right, that could point to private investment remaining stalled, though, which would mirror personal consumption. But, all in all, there is enough there to believe that the slowing of growth bottomed in the first quarter. The unknown, given the doubts over domestic private sector demand, is whether recovery is sustainable without growth restarting in the U.S. and European export markets, or whether it will require a second heft dose of government stimulus money to hit that 8% that will be hit.

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China’s Growth Slows To 6.8% In Fourth Quarter

Not much to say about the latest GDP figures, released today, which were in line with expectations. China’s economy grew by 9% last year, but the annual figure masks a rapid slowdown in the fourth quarter to 6.8%. It is also the slowest growth rate since 2001 and the first time growth has fallen into single digits since 2003.

So much for the numbers, but what of the future?  Xinhua quotes government economist Wang Xiaoguang saying that  the 6.8% fourth quarter growth rate was not a sign of a “hard landing,” just a necessary “adjustment” from previous rapid expansion: “This round of downward adjustment won’t bottom out in just a year or several quarters but might last two or three years, which is a normal situation.”

So expect more stimulus spending, easing of bank loan requirements and interest rate cuts. The was a sharp rise in renminbi bank lending in December (up 18.8 year-on-year, following a 17% rise in November; though the anti-inflation clampdown on bank lending a year back distorts the comparisons), which stirs some hopes that stimulus efforts are beginning to have an effect as the big state-run banks lend for infrastructure development.

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China Tweaks Its Economy Past Germany’s

Having fiddled with its GDP figures once more, China became the world’s third largest economy in 2007, passing Germany and closing in on Japan, which is number 2 after the U.S.

The National Bureau of Statistics said growth in 2007 was 13%, not 11.9% as previously stated, itself a revision from an initial figure of 11.4%. The latest change tweaks an extra $114 billion into the economy, all of which will do little to end some lingering doubts among economists about the robustness of China’s economic statistics.

Using the conventional market exchange rates,  Germany’s GDP was $3,3 billion in 2007, China’s GDP was $3.4 billon on the new estimate,  Japan’s, $4.4 billion and the U.S.’s  $13.8 billion. Private economists reckon that China will catch up with Japan  within five years. How long until it surpasses the U.S.? Goldman Sachs has pencilled in the year 2040.

While there is no doubt that the economy has grown by leaps and bounds since Deng Xiaoping inititated economic reform three decades agao, there there are famously lies, damned lies and statistics. China remains relatively poor. If you look at GDP per capita in purchasing power parity terms, which adjusts for price differences between countries to reflect buying power of local incomes, as the World Bank does, rather than comparing GDP at market exchange rates, China ranks as the 122nd richest country.

That said, as the FT and others point out, the latest GDP data “will reinforce the case to give China and other large emerging economies a bigger role in global financial decision-making.” Another reason for that is what is likely to be an overlooked point in the China-Germany economic comparisons. China is about to overtake the European country as the world’s largest exporter.

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Poor Rich Country

There are lies, damn lies and statistics, as the old saw has it. Then there is the World Bank’s shrinking of its estimate of the size of China’s economy.

The new number shows gross domestic product at $5.3 trillion in 2005 or 40% lower than previously estimated. It is based on purchasing power, and is intended to provide much needed up-to-date comparative growth data between economies. It still shows China as the second biggest economy after the U.S. (GP of $12 trillion) but with a GDP per capita at $4,091 of only 9.8% of America’s. China’s share of world GDP falls to 10% compared to 15% under the traditional measure, which does currency conversions at prevailing market rates.

The Bank’s president Robert Zoellick, who has been in China this week, says that the bank is drawing no policy conclusions from the revisions. But they could effect everything from China’s voting rights at the International Monetary Fund to how much aid and investment it gets from international institutions because it is poorer than thought — and especially when it comes to the adaption funds discussed at the recent UN conference on climate change in Bali by which rich countries would provide developing countries with finance and technology to help with the practical and social costs of reducing carbon emissions.

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