I was unaware when I was planning my trip to China, starting today, that the timing would be quite so good
The past week has provided a decent statistical insight into the health of the world’s second biggest economy and I’m looking forward to seeing how the numbers compare with the reality on the ground. What is happening in China is particularly important right now because an apparent moderation in the US recovery and renewed sovereign debt worries in Europe have put the onus back on China to keep the show on the road. Whether its landing is soft or hard matters more than ever.
In the run-up to last week’s announcements, that debate had been unusually lively, fuelled by two conflicting indicators, one from the Chinese government and one from HSBC. The government’s purchasing managers index surged in March to a level indicating robust growth while the bank’s own measure fell to a level indicating a slowdown. Chinese manufacturing is either growing at its fastest rate in a year or contracting at an increasing rate.
The early indications last week did nothing much to clarify the picture. Soggy trade data showing weak imports and indifferent exports set the scene on Tuesday. Despite that sluggishness, inflation edged higher in March, albeit well down on the peak of 6.5pc hit last summer.
Prices data were followed up on Thursday by a downgrade of expected growth this year by the World Bank to 8.2pc, which would be the slowest rate in 10 years. However, that was offset by bank loan figures showing a pick-up in lending in March.
All in all a confusing picture in the run-up to the most important indicator, Friday’s announcement of GDP growth for the first three months of 2012.
When that emerged, it was significantly lower than most people had expected. Growth in the first quarter was 8.1pc, compared with an 8.9pc expansion in the last three months of 2011. This was the slowest pace of growth in nearly three years but, as ever, the devil was very much in the detail.
For example, industrial production actually increased, against expectations of a modest slowdown, and retail sales ran at an annualised rate of more than 15pc. If the economy is slowing it is by no means doing so uniformly.
It has been particularly difficult to read Chinese data recently because of a number of distortions, including the timing of the Chinese New Year celebrations. But what seems clear from the latest data is that March was a markedly better month than January and February were.
Perhaps most interesting, in light of the Chinese government’s stated aim of rebalancing its economy away from its traditional bias towards exports and infrastructure, was the fact that growth was able to top 8pc despite a modest contraction in overseas sales.
It is interesting too that the growth rate remains safely above the revised Chinese government target of 7.5pc a year. It looks increasingly as if this is a floor below which the government is not prepared to go, rather than something to aim at.
With inflation under control and a leadership transition in prospect for the end of this year, it does look as if there will be further scope for more stimulus even if the massive injection of liquidity that kept the financial crisis at bay in 2008 looks to be out of reach this time around.
To think that the landing will be harder than this requires a belief that the government does not have any firepower left to give a fillip to domestic consumption, or that China’s export markets are heading for a dramatic slowdown. Neither looks probable.
There is nothing in this last week’s figures to undermine the underlying thesis that China is part way through a transformational process which will mirror the development of earlier Asian tigers but on a massively greater scale.
Having been through an extended period of double-digit GDP growth, driven by exports and infrastructure investment, we are now going through a transition to a more moderate but still powerful growth story fuelled by domestic consumption and a move from an agricultural to an industrial and then a service-based economy.
An interesting question – debated in my flight-time reading, When China Rules the World by Martin Jacques – is whether the end state will be an economy that closely resembles the Western model or something altogether different. By this time next week, I hope to be closer to an answer.
– Tom Stevenson