At last confirmation that China’s growth is lower than many expected. The 8% figure was never realistic. Why it takes so long for analysts to catch on to what is happening on the ground never ceases to amaze me.
So has China bottomed out? Whilst the FT might think so I believe the answer is no. The figures on energy use and profits tell the story. First, profits fall THEN firms start failing and firing. We are not even at the real firing stage yet. Firms try and struggle on and some will survive but many more must collapse first.
Whilst the pace of decline might slow, it is still a decline. More worrying, whilst bank loans have gone up a lot of these will be very BAD LOANS. This will just make things worse in the long term.
China’s economy grew at an annual rate of 6.1 per cent in the first quarter – its slowest pace since quarterly gross domestic product data was first published in 1992 – as Beijing struggled to prop up activity in the face of the global crisis.
The increase was down from 10.6 per cent growth in the same period a year earlier and 9 per cent for the whole of 2008 but aggressive government stimulus measures begun in the fourth quarter last year have started to yield signs of recovery.
The figure was “indeed quite an achievement” against the background of the worsening global crisis and recession in many of the developed economies that China relies on to buy its exports, said Li Xiaochao, spokesman for the National Bureau of Statistics.
Industrial production growth accelerated 8.3 per cent in March and 5.1 per cent in the first quarter from a year earlier, according to Mr Li.
But aggregate profits at large Chinese enterprises fell 37.3 per cent in the first two months from a year earlier and industrial use of electricity – which is usually closely correlated to industrial production – actually fell 8.38 per cent in the first quarter from a year earlier according to the China Electricity Council.
Mr Li said he had no explanation for the discrepancy between falling power consumption and rising industrial production but insisted that both figures were accurate and the issue required “further study”.
Rapid cooling in the Chinese economy has been led by a collapse in exports and private sector investment. This has prompted the government to fast-track infrastructure projects and spending programmes, and order state-run banks to open the credit taps to flood the system with liquidity.
Although there is still little evidence of new private sector investment, the government’s efforts have led to a rebound in investment figures and show signs of stimulating wider demand in the economy.
Sun Mingchun, an economist at Nomura Securities, said economic data released on Thursday “showed that the economy has gained significant momentum since February”.
Fixed asset investment, which accounted for more than 40 per cent of GDP in 2008, showed a marked acceleration in March, rising 28.8 per cent in the first quarter, 4.2 percentage points higher than growth in the same period last year.
The bulk of the increase came from government-supported infrastructure projects.
The decline in Chinese exports decelerated in March, with exports falling 17.1 per cent from a year earlier, compared with a 25.7 per cent decline in February, leading some analysts to predict a stabilisation in trade. Others said further weakness in external demand was the main risk.
Originally published at the China Economics blog and reproduced here with the author’s permission.