The Chinese economic experience has drawn considerable attention; few if any countries have matched China’s record of sustained and rapid export-led growth. China’s economic performance appears exemplary even during this global recession.
However, as noted in Part I of this series on China, working people have paid a heavy price for their country’s growth. And, they have responded with ever growing resistance.
In this post, I focus on China’s current economic performance. According to official Chinese data, the country’s GDP increased at a rate of 6.1% in the first quarter of this year (down from over 8% last year). Although a 20 year low, this is still an impressive achievement. In fact, it is so impressive that many analysts don’t believe it.
- China is an export driven economy, yet its exports have fallen for seven straight months (from November to May).
- As a result of massive excess industrial capacity, China is now facing disinflation; May marked the fourth consecutive month of falling consumer prices.
- Profits at large Chinese firms actually fell by 37.3% in the first two months of this year. Moreover, there are no signs of any revival in private investment.
- Foreign direct investment (excluding the financial sector) has been declining for eight straight months; it fell by 20.4% between January and May. The number of newly approved foreign enterprises fell by an even greater 33.8% over the same period.
One would need a powerful stimulus to overcome these trends, and those who accept official GDP figures argue that this is exactly the situation in China: a massive government stimulus program has successfully sustained Chinese industrial production and retail sales.
The Chinese government has indeed greatly boosted its spending and expanded state lending. And government figures show continued positive growth in both industrial production and retail sales. But, there are good reasons to doubt that the stimulus program has been so successful.
For example: Chinese industrial production has long been correlated with energy use. Yet, while government figures show steady growth in industrial production over the first quarter of this year, China’s industrial use of electricity actually fell by more than 8% over the same period and the rate of decline appears to be accelerating.
Moreover, as the Asia Times reports, there are major discrepancies between reporting agencies concerning sales of key products such as cars. “Sales by China’s top 10 automakers as provided by their industry body are on average 10% higher than those indicated by licenses being issued.” Similar problems are found with housing data. Dongguan is a major industrial city hard hit by the fall in exports. Its housing administration bureau reported declines of almost 40% in apartment sales last year while the National Bureau of Statistics recorded declines of only 10%. This pattern is repeated in major cities across the country.
There are signs that even the central government is becoming suspicious of the underlying data that is fed into GDP calculations. It implemented new regulations (which took effect May 1) under which state officials can be demoted, dismissed, or criminally punished for making false reports or compiling fake data.
In Part III, I look more closely at the Chinese government stimulus package and the hopes of many analysts that this spending signals greater attention to the domestic economy, thereby also providing a needed boost to the global economy.