Is China’s Economy Crumbling?
On Saturday, Bloomberg reported that a joint forecast by Xiamen University and the National University of Singapore predicts Chinese economic growth will slow to 8.6 percent this year, down from 2011’s 9.2 percent announced last month by Beijing’s National Bureau of Statistics. Growth will bottom out in the second quarter of this year at 8.4 percent, according to the Xiamen-Singapore study, which is in line with consensus views.
Everyone believes that China’s growth is on the downswing. Government researchers told Reuters that next month Beijing will announce a growth target of 7.5 percent for the year. That’s down from the long-held 8.0 percent goal.
What’s wrong with all these predictions? For one thing, they assume there will be growth this year. At the moment, the economy, according to other official year-to-year data, looks like it may be contracting.
Electricity consumption, the best indicator of Chinese economic activity, declined 7.5 percent last month. China’s aggregate financing, perhaps the second best signal, collapsed, falling by almost half. New lending in January was the lowest in five years.
Bellwether car sales? They tumbled 23.8 percent. Property prices were off for the fifth-straight month, and foreign direct investment fell for the third month in a row. Exports and imports were both down. Especially depressing was the plunge in imports destined for China’s consumers, a sure sign of a deteriorating economy. Industrial orders were contracting too, according to the closely watched HSBC Purchasing Managers’ Index.
There were some indicators showing expansion, but on balance it appears the Chinese economy got smaller last month. There were four fewer work days in January this year, compared to a year earlier, due to the Lunar New Year holiday, but that does not begin to explain these numbers, which were much worse than expected.
The slowdown makes Beijing vulnerable to pressure from the United States. Why? Because the fastest way for China to stimulate growth is to attract fresh funds from the outside, specifically export earnings and new investment.