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Graph paths: eight more realistic indicators on China's economic health

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by David Campbell on Nov 05, 2012 at 11:17

How reliable is the official figure and what offers a more realistic picture of Chinese growth?

Few economic data points have been as parsed in recent years as Chinese GDP, so it is worth asking how valuable it actually is. Firstly, we should note they simply don’t add up: annualising Q on Q data gives a very different result than actual annual figures. Why is a mystery, but it doesn’t breed trust.

As has been noted, likely premier-in-waiting Li Keqiang reportedly doesn’t use GDP data, relying instead on a handful of less easily manipulated data points. Among these, the weight of freight shipped by rail shows the biggest disparity with headline growth, effectively nosediving.

Similarly, electricity production doesn’t seem consistent with an economy apparently reaccelerating, being flat or falling consistently over the last six months. Consumption figures reveal a very similar pattern. Both can be muddied by factors other than growth, but add to a sense of disconnect.

While more stable than electricity and freight, lending growth has effectively flatlined over the last 12 months, despite a moderate easing of monetary policy. Although growth remains positive, there is no uptick one might expect from a recovery in overall economic growth.

China is fighting headwinds so strong that even its $157 billion stimulus plan (which might itself exacerbate excess investment) will find the going tough. While exports to the US bounced from near zero growth in August, exports to its second largest market, Europe, declined by double digits.

While consumption growth is growing sharply (at an annual 17%, more than double GDP) it is doing so from a low base, and not fast enough to wean the economy from external dependence. The saving rate remains very high compared to consumption-led (UK) or balanced (Brazil) economies.

This has ramifications for future growth (and current expansion to meet future growth). The dependency ratio of non-economically active population versus workforce shows China has a far shorter period in which to cash its demographic dividend than peers, thanks to the one-child policy.

While upper single digit growth looks good from the debt-laden West, it’s worth remembering China has nonetheless disappointed expectations. The IMF has consistently downgraded its growth outlook for China over the last two years, by more than 100 basis points in the near term.

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