Photo: Paul Gilham/Getty Images
Chinese officials have officially stuck the landing, according to Goldman Sachs Asset Management chairman Jim O’Neill.After months and months of debate, says O’Neill, it now appears that China’s economy is not collapsing, but rather settling into a slightly slower, but still brisk pace of growth.
In his latest letter he writes about the recent pickup in data, and the performance of Chinese planners. In short, when it comes to money supply data, trade, and so forth, things are suddenly looking up.
China – How Good Are Chinese Policymakers?
If China were a football team, you might want to support them and/or wear their replica shirts. After months of debate about a ‘soft’ or ‘hard landing’, the data published since last Friday is very supportive of the optimists’ view. Here’s the list; M2 money supply growth accelerated to 14.8% in September (and as a result the Chinese Financial Conditions Index (FCI) is easing, a positive sign for future growth), the trade balance came in at a high $27.7bn with exports stronger than expected at 9.9%. While we should want China to export less and import more, in terms of the cycle, we don’t want them to export nothing. And before readers jump to the conclusion that this is the ‘wrong sort of growth’, in the nine months to September, the trade surplus is around $150bn or about 2.5% of GDP. This is a quarter of its levels pre-2008.
Chinese CPI rose by 1.9% year-on-year in September, significantly below the PBOC’s 4% 2012 target. The 3.6% decline in PPI suggests that near-term future inflation is not a risk. Inflation will probably ease further which, amongst other things, will continue to boost real Chinese income growth.
Chinese GDP for Q3 rose 7.4% year-on-year, in line with expectations, with statisticians stating that quarterly momentum was higher than expected at 2.2%. For the first nine months of 2012, GDP has risen 7.7% and Premier Wen said it looks as though China will easily meet their 7.5% ‘target’ for 2012. In fact, they will probably exceed it slightly. Not bad, eh?
To top off a good week for Chinese data, industrial production rose a better than expected 9.2%, up from 8.9%. Most importantly, retail sales rose by a much stronger than expected 14.2% which, given subdued CPI, translates into a healthy acceleration of real retail sales, a sign of rising consumer spending. As I’ve said before, every month I look to the relative performance of retail sales to industrial production (see chart) as a guide to Chinese economic rebalancing, along with the trend of the trade balance.
So, let’s reflect a little. Chinese GDP growth for 2012 will probably come in now at 7.7% to 7.8%, just above Premier Wen’s 7.5%. After 9.2% growth in 2011, the first two years of the decade are averaging 8.5%. We have assumed 7.1% growth for the decade. This currently seems very doable. Moreover, China has slowed to this pace from its previous three-decade average of 10.25%. With a trade surplus a quarter below its peak, stabilised housing prices, consumption rising as a share of GDP, and inflation below target, the situation looks good. While so many waste time wondering and worrying about whether any of the data is accurate, I find myself this week wondering whether China is managed by Sir Alex Ferguson?
[Alex Ferguson is Manchester United’s superstar manager… O’Neill is a big Manchester United Fan]
You might think that O’Neill is permanently optimistic, and that he’s prone to see green shoots where ever he looks, but he’s not the only one who is getting hopeful.
On October 16, we wrote that there was clearly a sentiment shift happening with regards to China.
A CNBC article yesterday was titled: Suddenly, Everyone’s Turning Bullish On China.
And indeed the FXI ETF (which is focused on big Chinese companies) is up big since early September.
If China is stabilizing, as O’Neill and others think, it will make the IMF’s recent downgrade of global growth all the more questionable, in terms of timing.
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