Although the GDP figures from China were not yet disastrous, given the very little faith the market has on the accuracy of Chinese data, quite a few people including ourselves suspect growth was actually lower. That suspicion was raised especially when electricity output growth has slowed to zero, which implies much lower growth.
Sell-side consensus, however, believes that growth will recover in the second half of the year. The reason for such recovery is nothing remarkable: stimulus, and stimulus alone. Surely, the People’s Bank of China has already started easing somewhat, and the government has expressed the intention to bring investment projects forward to stimulate growth. Because there is no shortage of people in the market who believe that Chinese leadership is God, the idea that China will certainly stimulate its way out of any situation becomes somewhat of a mainstream view despite increasing number of sceptics.
Beyond blind faith that China will have both the ability and the willingness to stimulate its economy out of the current slowdown, however, it is hard to tell from the data whether there are signs that growth will rebound in the third and fourth quarters.
The chart below shows industrial production growth and GDP growth. Industrial production growth appears to be slightly leading, and because industrial production growth numbers are published every month as opposed to every quarter as in the case of GDP, this gives a more up-to-date view of the economy (relative to GDP).
For the time being, although industrial production growth has stopped falling (and there is not reason to believe it has bottomed at this point as we continues to see manufacturing slowing down as per PMI), it appears to be pointing to a somewhat lower GDP growth.
We mentioned that the high loan growth figures in recent months should bolster confidence of the consensus that the government is already trying hard to stimulate, and it will feed into growth in the second half. However, the pick-up in loan growth mainly came from short-term loans, which could be interpreted as a lack of interest in long-term investment, short-term financing for rolling over debts, or possibly short-term liquidity for struggling companies. For the moment, we see positive signs on monetary front, but not enough to get us excited.
We are also, as we mentioned, puzzled by the retail sales figures, which appears to be heavily manipulated, particularly for the month-on-month figures. The same can be argued for the GDP growth numbers, where the first quarter quarter-on-quarter figures were adjusted downward while the second quarter growth appeared to be stronger than the first quarter although the year-on-year growth is trending downwards.
Of course, there are a few signs that seem to be recovering. Real estate sales, for example, has been rising according to high frequency data. The month official data shows that sales growth on a year-on-year basis has indeed bottomed. Although it remains in negative territory, it is falling at a slower pace.
However, as we also noted, that housing start continues to decline. Also noteworthy is that housing start, like many other data published by the National Bureau of Statistics, are in the forms of year-to-data data, that means the numbers announced for any given month represents the cumulative figures from the beginning of the year (i.e. number published for March is actually for January through March).
We sometimes adjust the numbers to reflect individual months instead of accumulative, which invariably yield strange results (which is an important indication of just how fake the data are). Notwithstanding the shortcoming of this kind of adjustment, we found that residential housing start growth on a year-on-year basis has been in negative territory for since December of last year.
Although not completely reliable, this adjusted measures suggest that residential housing investment has been contracting, and the severity of the contraction is getting close to 2008/09, and there is no clear sign of bottoming here for the time being. Given the contribution of real estate investment to the GDP, this data point does not bode well for the growth rebound story.
We can go on and on in pointing out data points that don’t make sense and data points that are not improving. The bottom-line is that we see very few signs that points to recovery. The consensus of a second half rebound is, in our view, based entirely on the faith on the government’s ability and willingness to stimulate the economy.
This article originally appeared here: No clear signs of bottoming yet for China’s economy
Also sprach Analyst – World & China Economy, Global Finance, Real Estate
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