China’s economy is worse than it looks


Jan 23, 2019-

China’s economy is slowing, and the slowdown is probably worse than Beijing says.

Official numbers released on Monday show an economy that is posting new, but manageable, lows. For the last three months of 2018, growth came in at 6.4 percent compared with a year earlier. That’s the slowest pace since a decade ago, when China was grappling with the global financial crisis.

For the full year, according to official data, the Chinese economy grew 6.6 percent. That’s the weakest pace of growth since 1990, when China’s economic miracle stumbled in the aftermath of the crackdown on protesters in Tiananmen Square the year before.

As slowdowns go, the numbers indicate a mild one befitting a big, maturing economy like China’s. While the figures match historic lows, they show only a small drop from previous periods.

Monthly data released on Monday also suggested better-than-expected consumer spending and industrial production in December, raising the possibility that growth is stabilising.

More detailed data tell a less positive story.

From investment to consumer spending to factory activity, the Chinese economy slowed markedly in the second half of the year. The figures also indicate that the trade war with the United States is taking more of a bite.

Moreover, the December uptick comes in large part from Beijing’s efforts to get growth going again. While China’s leaders have quite a few ways to juice growth if their current efforts aren’t enough, their options often come with tricky trade-offs that could add to the country’s debt problems or add to other imbalances plaguing the economy.

China’s slowdown is one of many reasons that the world economy is gradually decelerating. At a briefing on Monday afternoon at the start of the World Economic Forum meeting in Davos, Switzerland, the International Monetary Fund said that Germany, Italy, Mexico and Turkey each face slower growth in the year ahead than previously expected, for a variety of reasons particular to each country.

“The world economy is growing more slowly than expected, and risks are rising,” said Christine Lagarde, the managing director of the IMF. “Does that mean that a global recession is around the corner? No. But the risk of a sharper decline in global growth has certainly increased.”

Beijing took steps to rekindle growth at the end of last year, and it showed. Retail sales and industrial output ticked up in December from November, suggesting consumers and businesses alike were feeling a little better as the year came to an end.

But those monthly figures could not fully make up for a lacklustre performance in the second half of the year. Retail sales slowed markedly during those last six months, weighted by a steep tumble in activity at China’s car dealerships and broad weakness in

smartphone sales. Investment in fixed assets like new factories and office buildings was anaemic.

“China’s economy has slowed significantly in recent months,” said Louis Kuijs, a China specialist at Oxford Economics, a large consulting firm.

More broadly, many economists have estimated that China’s slowdown is worse than the government’s figures show, citing more detailed data. Some economists estimate growth is just a fraction of the headline figure, though most economists who crunch the figures say the number is only a percentage point or two lower.

The question now is whether an improvement in December will carry over to the start of 2019. Despite the positive signs, China just two weeks ago decided to pump tens of billions of dollars into the financial system, suggesting that it sees a recovery as fragile at best.

China’s economic problems began before Trump began imposing tariffs on Chinese-made goods. That said, the trade war is not helping.

Activity has also slowed lately at many export-oriented factories. Many rushed to ship goods to the United States before a feared increase in tariffs on Jan. 1 that did not end up happening, filling warehouses with surplus goods. Many Chinese factories have eliminated overtime and looked for other ways to trim employment costs.

Economists at J.P. Morgan, the investment bank, on Monday slightly reduced their growth expectations for the first three months of the year, citing weaker-than-expected December trade figures.


Published: 23-01-2019 11:00

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