Weary of manifold dismal economic reports, solace-seekers have turned to the
balm of Chinese data in the past 18 months. They haven’t been disappointed. But
that may be changing. Recent stats are taking the shine off the impressive
record, casting doubt on the fledgling global economic rebound.
China
was stung by the onset of global recession, as GDP growth melted in the second
half of 2008. Year-on-year growth plunged from double digits to just 6.1 per cent by the
first quarter of 2009, implying a quarterly growth pace of under 4 per cent – a crisis
zone for China. But the rebound was swift, and in spite of world weakness, China
was back to double-digits by year-end. Growth in the January-March period this
year reached 11.9 per cent – stunning growth by any measure, and enough to get
policymakers agitated about a run-up in inflation. In the eyes of many others, a
nice problem to have.
Recent developments may take care of that problem,
but create another, less desirable one. Key economic indicators are slowing on a
number of fronts. Red-hot real estate markets have shown signs of cooling.
Residential markets reacted badly to slowing growth late in 2008, but were
swiftly revived by aggressive monetary easing. Homeowners were placated, but
anecdotal evidence suggested speculators got active. Surging prices led
authorities to tighten credit earlier this year, and reports indicate a
subsequent sharp drop in property transactions. Investors are shunning Chinese
real estate companies’ dollar bonds, now the worst performers in the Asian
non-financial debt market.
Real estate is not the only casualty. Growth
in demand for automobiles is dropping sharply, prompting instant policy changes
to shore up sales. Also, international markets did not react well to news of
slowing growth in the manufacturing sector during May, as indicated by two
separate surveys.
At first blush, the Conference Board’s leading
indicator for China seems to buck the trend. In its latest reading based on
March data, the indicator increased sharply. However, average growth in the
index has moderated, and the jump in March was based on consumer optimism and
construction activity, two sectors that appear to have moderated since the
survey. At the same time, new export orders and supplier deliveries contracted
in the month, suggesting nascent difficulties with external demand.
Add
it all up, and the slowing trend suggests much weaker GDP growth in the current
quarter. If past trends are any guide, the recent down-trend in industrial
production, together with the sharp year-to-year slowing in growth of
electricity output, suggest that economy-wide growth slowed sharply, to as
little as 7-7.5 per cent. If so, a deceleration of this magnitude is sure to raise
eyebrows everywhere.
Puzzled by the about-face? There is a reasonable
general explanation. China’s own fiscal stimulus plan was about three times the
size of the average OECD package. Add the significant monetary stimulus, and the
overall boost could have been as high as 17 per cent. A package that large has a huge
impact on bottom-line results, in both the growth and decline phases. We are
likely now into the latter.
The bottom line? One of the bright spots of
the global economy during the Great Recession appears to be fading, casting some
doubt on China’s ability to sustain domestically driven growth. For this
much-watched economy, a more convincing recovery of offshore demand cannot come
soon enough.
The views expressed here are
those of the author, and not necessarily of Export Development Canada.