Is China’s Economy Headed into the Abyss?

Friday, September 23, 2011 22:50

Even as a number of websites are wetting themselves over Apple’s recent store opening in Shanghai, discussions of China’s economic strength have begun to take place.

Largely catalyzed by the recent data showing exports had decline (and imports had increased) and HSBC’s Flash PMI report showing China’s manufacturing sector had retracted again, analysts are looking to understand what the data could mean for China’s economy.

From the recent CNBC/ NY Times piece Is the Chinese Economy in Trouble Too? :

On the surface, economists at the International Monetary Fund and most banks are still estimating China’s growth rate to be over 9 percent this year. China continues to run very large trade surpluses. New construction starts have soared with a government campaign to provide more affordable housing.

And yet, the country’s huge manufacturing sector is starting to slow and orders are weakening, especially for exports. The real estate bubble is starting to spring leaks, even as inflation remains stubbornly high for consumers — despite a series of interest rate increases and ever-tighter limits on bank lending.

Other analysts have taken it a bit further by trying to understand what the impact of a slow down (regardless of sector would be) by looking at China’s banks, which are expected to see rising non-performing loans in any slowdown, and at the wider issue of inflation.

From what I am seeing though, and remember I am in Shanghai where China’s wealth is at a far higher concentration, many of the signs that I began seeing in 2007 have yet to show themselves.  Restaurants are packed, taxis are hard to find, real estate pricing is continuing to rise, retailers I speak with are still reporting great numbers, and business managers are all reporting that business is holding up (in the China market) for industrial and consumer products alike.

I view these signs often with more credibility than statistics because I have a healthy distrust of the various sources of statistics in China.  Especially given the fact that it is still far too easy to fudge the facts in China when there is a compelling short term economic or political reason to believe in those statistics.

After a minimum of public discussion and despite contrary expert advice, the nation’s unelected rulers decided to spend hundreds of billions of dollars on a mode of transportation that many, if not most, ordinary Chinese cannot afford to use. As the cash flowed, well-connected officials lined their own pockets. Plan-fulfillment and national prestige took priority over passenger safety as officials muzzled reporters who dared to say otherwise.

So, for now I am going to take the recent data as a good sign.  That China’s economy is continuing its process of relying on the domestic economy as an engine for economic stability (vs. exports), and that its production while coming down has not reached a worrying level yet.  had it, then it would not be the statistics I would be reading about, it would be about the millions of recently unemployed migrants and government policies meant to make the farm more attractive until the economy rebounded.

That being said, if anyone in other parts of China are starting to see things that we are not seeing in Shanghai, please post in the comments.


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One Response to “Is China’s Economy Headed into the Abyss?”

  1. Richard says:

    November 18th, 2011 at 5:15 am

    Very interesting. I hadn’t really considered the idea that the stats could be deliberately changed so as to justify policy. From what I understand, the easing in the economy is coming from the bursting of the housing bubble in Shanghai and Beijing. If as you say, the observations that Shanghai is still very active, then maybe you are right about the outlook.