There were a couple of stories about the state of the Chinese economy during the weekend. Covering this story continues to be one of the biggest for business journalists, but sometimes it’s just hard to make sense of an economy that’s controlled by the state.
Here’s the New York Times story:
After weathering the global financial crisis better than any other large economy, China is now showing signs of slackening growth despite heavy lending from state-owned banks and extensive government investment programs.
Industrial production fell last month to its lowest growth rate since last September, data released over the weekend showed. Imports, mainly materials needed by factories, and fixed-asset investment both fell in May to their weakest growth since last August, when the economy was still mired in a sharp but deep summer slowdown.
Producer prices, typically measured at the factory gate, have declined year-on-year every month for 15 months in a row and have accelerated downward through March, April and May. Chronic overcapacity has set off price wars even as blue-collar wages continue to rise.
The May data “have confirmed that the economy is stuck in stagnant growth again after quite a brief rebound” over the winter, said Xianfang Ren, a senior economist in the Beijing office of IHS, a global consulting firm. “Demand-side indicators are unanimously weak, with extremely weak exports growth and continued slide of fixed-asset investment growth.”
China’s difficulties have global significance because the country has emerged as the world’s largest consumer of many goods, including items like copper, steel, cars and cellphones. Economists from a number of international organizations and banks have been marking down their forecasts for Chinese economic performance this year, predicting growth of about 7.7 percent. That would be a robust pace by most countries’ standards but is weak for China, where many businesses and families had become accustomed to double-digit growth over most of the last three decades.
The Reuters story led with the numbers for the second quarter with a lead that stuck closely to the facts with little embellishment:
Risks are rising that China’s economic growth will slide further in the second quarter after weekend data showed unexpected weakness in May trade and domestic activity struggling to pick up.
Evidence has mounted in recent weeks that China’s economic growth is fast losing momentum but Premier Li Keqiang tried to strike a reassuring note, saying the economy was generally stable and that growth was within a “relatively high and reasonable range”.
China’s economy grew at its slowest pace for 13 years in 2012 and so far this year economic data has surprised on the downside, bringing warnings from some analysts that the country could miss its growth target of 7.5 percent for this year.
Exports posted their lowest annual growth rate in almost a year in May at 1 percent, exposing a more realistic picture of trade following a crackdown by authorities on currency speculation disguised as export trades to skirt capital controls, which had created double-digit rises in export growth every month this year even as world growth stuttered.
The Financial Times lead offered the best wrap up of all the economic information and context at the top of their story:
The Chinese economy is grinding toward its second straight quarterly slowdown after data from May provided fresh evidence of sluggish growth.
Trade growth tumbled, imports fell, inflation slowed, investment weakened and bank lending also declined, putting pressure on the government to do more to prop up growth.
Beijing is aiming for 7.5 per cent growth this year and the anaemic data mean the economy is at risk of slipping below that target in the second quarter. China’s new leaders have vowed to shift the economy away from a reliance on government-led investment, so the slowdown will test their resolve to implement reforms as they try to unleash consumption as a bigger engine of growth.
“The May data is moderate in every way, which does nothing to lift expectations, and introduces greater uncertainty about the direction of policy,” said Ken Peng, an economist with BNP Paribas.
The most dramatic decline was seen in China’s trade figures. Exports rose just 1 per cent in May from a year earlier, down from an increase of 14.7 per cent in April. Imports shrank 0.3 per cent in May after expanding 16.8 per cent in April.
The Wall Street Journal decided to lead with the credit angle:
China is moving to slow a surge in credit that could produce a wave of bad debts and financial failures, but it risks reducing the pace of growth in the world’s second-largest economy.
Total social financing—China’s widest measure of credit—fell by about one-third to 1.19 trillion yuan ($194 billion) in May from April, the second month of substantial decline, the People’s Bank of China said Sunday. New bank loans, a subset of total social financing, also has fallen significantly during the past two months. On Friday, the central bank warned that unconventional lending known as shadow banking was creating increased risks for the financial system.
But putting the brakes on lending risks a further slowing of China’s growth, as companies, government infrastructure projects and real-estate developers find it tougher to find financing. Already, a raft of data for the month of May suggests the current quarter could be a second consecutive quarter of disappointing growth, and many economists have been downgrading their forecasts for this year’s growth.
All the dire news doesn’t bode well for Wall Street or those predicting that the global economy will turn around quickly. What will be interesting is to see if the Chinese government pulls any levers to spark growth. The rest of the world will be watching and waiting.
