Reports from the Economic Front

by Martin Hart-Landsberg

Chinese Economic Woes

without comments

Reports From The Economic Front will now only appear at its new home: 

https://economicfront.wordpress.com/  

If you want to receive future posts by email click the follow link at the new site, sign up as a wordpress member, and then select email delivery from your reader.

 

China’s economy is dramatically slowing and this has significant consequences for world growth.

The following figure provides a good visualization of the slowdown and why official statistics likely overstate China’s current official growth rate of 7%.

shrinking chinese economy

As you can see, several key indicators of economic health have fallen sharply compared to their 4 year average.  For example, electricity output has basically stopped growing compared to its four year average growth rate of 5%.  Auto sales are in negative territory as are imports, including of key industrial commodities.

The trend in official Chinese government growth statistics leaves no doubt that the country’s rate of growth is slowing: 10.6% in 2010, 9.5% in 2011, 7.8% in 2012, 7.7% in 2013, 7.4% in 2014, and 7% for the first half of 2015.  But, as DW-Asia explains:

Weaker growth, a volatile stock market and faltering exports have highlighted the weakness afflicting the Chinese economy. Experts, however, fear China’s woes are much more serious than what the official data suggest. . . .

Furthermore, concerns abound about bubbles building up in the economy. For instance, analysts at global bank Credit Suisse believe that China is undergoing a “triple bubble” – a combination of the third-largest credit bubble, the biggest investment bubble and the second-biggest real estate bubble of all time.

Many analysts believe that Chinese growth figures are heavily adjusted to ensure that the country hits announced government targets.  They therefore study the performance of more easily measured indicators of economic activity, like electricity output, auto sales, and imports of key industrial commodities.  These indicators, as illustrated above, are in sharp decline and as the Wall Street Journal reported:

When China released its tabulation of first-quarter growth earlier this month, the 7% figure—the worst in six years—stirred fears of a deepening slowdown.

It also raised fresh doubt about the trustworthiness of China’s own statistics.

“Growth Likely Overstated,” said a Citibank report, concluding that actual quarterly growth could be below 6% year to year, depending on the factors weighed. Other research firms put their numbers far lower, with Capital Economics pegging the quarter at 4.9%, the Conference Board’s China Center at 4% and Lombard Street Research at 3.8%.

China’s recent decision to allow its currency to devalue is one measure of government concern.  The government no doubt hopes that the devaluation will jump-start exports and growth but this is unlikely given the general weakness in demand in most markets.

In fact, China’s economic slowdown will itself translate into a deepening global slowdown.  As the country’s growth slows so does its demand for parts and components produced in other Asian countries and primary commodities purchased from Latin American and sub-Saharan countries.  And as growth in all three regions declines this can be expected to put downward pressure on growth in core countries, especially Japan and Germany, both of whom also rely on an export-led growth strategy.

Written by marty

August 13th, 2015 at 9:00 pm

Leave a Reply