China’s economic activity more stable than you think

August 22nd, 2013 | by Rekha
China’s economic activity more stable than you think
Economics
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Over the last few months, world economy watchers have been reporting a downtrend in China, the world’s second largest economy – partly due to the global tendencies of economic stagnation and partly sue to China’s internal economy.

China’s economic activityHowever, the latest reports question whether at all there is any downslide in Chinese economy. Clifford Coonan, in his report, observes at the start that it is a misconception to use the terms ‘recovery’ or ‘stabilizing’ in China Economics as if there was a ‘meltdown’ of large scale. He states that there was never any downslide.

What is the real happening to the world’s second largest economy?

The trend

In the past few months, the economic data painted a picture of economic slowdown in China. There was an imminent prospect of hard landing: in fact, the global economy was upset and braced itself for the repercussions.

After these gloomy reports in the last few months, there was a sudden turn-around of the economic data in China’s way:

v  The industrial production in July, 2013 was reported to be up by 9.7% as compared to the previous year. Also, the import and export trade data reported an increase – exports were up by 5.1% and imports, up by 10.9% as compared to the previous year.

v  The retail sales were unchanged from July to June, an increase of 13.2%.

v  Fixed assets investment in July was up by 20.1% as compared to the previous year.

v  Property investment was up by 20.5%.

v  The consumer price index in July was unchanged from June at 2.7 per cent, while producer prices continued to fall but at a slightly slower rate than in June.

The reality

There has been some confusion about China’s growth targets. While the Finance Minister Lou Jiwei told reporters in Washington on July 11 that 6.5 per cent growth could be tolerated, the state news agency Xinhua subsequently changed the report to quote Lou saying there was no doubt that China would achieve 7.5 per cent.

Premier Li Keqiang stated last month that seven per cent growth was China’s “bottom line”.

Reactions

v  Moody’s

Moody’s, the credit rating agency believes that China has put the worst behind it, as per the statistics for July above. China’s economy was returning to normal status. But the recovery will be at a slow pace.

v  Geoff Raby, head of Geoff Raby & Associates & a former Australian ambassador to China

He believes that the markets, and the media, overreact to economic data out of China. In Business Spectator, in a column entitled “China bears lumber back to their caves”, he stated that calling a recovery or a stabilizing of the Chinese economy is just as misguided as saying it was in meltdown just a few weeks ago.

He explained that China’s economy has not been in a slump. The published data shows that growth has slowed from somewhere near the top end of the 7-8% range to somewhere near the lower end. This can be hardly interpreted as a crash. Viewed over the full year, China’s economy is neither recovering nor slowing, but has recorded a fairly consistent growth rate throughout the course of this year.

v  Capital Economics

In a research note, Capital Economics reported that data in the past month has brought some hope that economic conditions in China, and in another of the four BRICs – Brazil – might be improving, but it remains cautious.