Charting China’s Economy: The Fourth Quarter.Search China Real Time Report
January 18, 2013, 10:52 PM.
Charting China’s Economy: The Fourth Quarter.Search China Real Time Report1 .Article Comments (113)
China’s economy has bounced back. A return to accelerating growth in the fourth quarter breaks seven straight quarters of declining growth and draws a line under concerns that the world’s second largest economy is heading for a hard landing.
To engineer the rebound, China’s government turned again to boosting credit and investment spending. But beneath the surface, there were also signs a rebalancing toward consumption may be underway.
China Real Time charts it out:
Growth in gross domestic product accelerated to 7.9% year-on-year in the fourth quarter, up from 7.4% in the third. The sequential growth rate showed signs of stabilization, with annualized quarter-on-quarter growth at 8.2%, down from 8.7% in the third quarter.
Investment bank economists continued to calculate their own quarter-on-quarter growth rate. Wang Tao, China economist at UBS, saw an even more positive picture, with growth accelerating to 8.6% in the fourth quarter from 8.0% in the third.
Real economy indicators like electricity consumption, one of the measures premier in waiting Li Keqiang said he uses to track growth, and steel production, also pointed to a strengthening economy.
For the year as a whole, GDP growth of 7.8% was down from 9.3% in 2011 and the slowest rate of growth since 1999. Ma Jiantang, head of the National Bureau of Statistics, said there would be no return to the era of super rapid growth, and China should aim for something between 7% and 8%.
One reason growth has slowed: a shrinking workforce. Mr. Ma said that China’s working age population shrank by 3.5 million in 2012. Off a total of more than 900 million that might not seem particularly alarming. But it signals an important turning point from an expanding to a contracting pool of workers.
Key to the recovery – strong investment in the real estate and infrastructure sectors.
After almost three years of strict controls, China’s real estate sector is showing signs of springing back to life. Sales had a strong quarter, with floor space sold rising 32% year-on-year in November. Sales for Vanke, China’s biggest developer by revenue, were also up more than 100% in December.
Local government investment vehicles – the heroes of the 2009-10 stimulus, and the villain of subsequent concerns about bad debts and bridges to nowhere – were back on the stage. Investment in roads and railway picked up from lows earlier in the year.
Manufacturers were less optimistic, with overcapacity and rising debts denting investment growth in the sector. Lan Shen, one of the China economists at Standard Chartered, notes that manufacturing investment decelerated to 16% year-on-year in December, down from 20.4% in November.
But with more real estate and infrastructure construction underway, industrial output still rose to 10.3% year-on-year growth in December, up from 10.1% in November and a low of 8.9% in August.
Zhang Jianping, a researcher tied to the powerful National Development and Reform Commission, was optimistic about the scope for more capital spending. “This year’s investment growth will be similar to 2012 as room for investment remain large due to the gap between western and eastern china, and between urban and rural areas,” she said.
Labor markets tightened in the final quarter of the year. Data collected by the Ministry of Human Resources and Social Security from local employment bureaus shows the ratio of job opportunities to job seekers rising to 1.08, up from 1.05 in the third quarter and matching the previous peak in the first quarter of the year.
That supported continued rapid increases in wages. Average wages for migrant workers were up 11.8% year-on-year. Urban household disposable income rose 12.6% for the year – outpacing growth in nominal GDP. Higher wages supported robust growth in consumption.
Electrical appliance retailer Gome, which faced tough times last year as a weak housing market put washing machine sales into a spin, said they thought the worst could be behind them. A property market uptick will have a positive impact on the appliance market, a spokesman for the company said.
All of that raised hopes that the long awaited rebalancing of China’s economy toward a stronger role for household consumption might finally be underway. Janet Zhang at Dragonomics noted that consumption accounted for 4 percentage points of China’s growth in 2012, higher than the 3.9 percentage-point contribution from gross capital formation, with exports dragging the total down.
Foreign demand showed some signs of recovering, with exports bouncing to 14% year-on-year growth in December, up from 2.8% in November. But with matching numbers from trade partners not quite so impressive, there were doubts about the accuracy of the data.
Louis Kuijs, China economist at Royal Bank of Scotland, finds a discrepancy between Chinese data on exports to Hong Kong, and Hong Kong data on imports from China. Whilst not conclusive proof that China’s export data is off, Mr. Kuijs concludes it’s possible export growth in the final months of 2012 is out by as much as 4 percentage points.
China’s imbalance with the rest of the world ticked back up. The trade surplus for 2012 grew to $232.8 billion, up from $157.8 billion in 2011. The politically contentious trade surplus with the U.S. rose to $219 billion from $202 billion.
The yuan ended the year on a tear. After depreciating against the dollar for several months of the year, China’s currency hit an annualized month-on-month appreciation rate of about 3.5% in November and December. For the year as a whole, that was still only enough to leave the yuan up 0.2% at 6.2855 to the dollar.
Inflation showed signs of rearing is piggy head, with consumer prices up 2.5% year-on-year in September, acceleration from 2% in November. Food prices, which were up 4.2%, were the main culprit. Analysts worried that the “pig cycle” – a term for the pattern of pig production, not a 4-H exhibit – had turned, threatening a further increase in prices over the year.
With growth on track, partly thanks to rate cuts earlier in the year, the central bank kept policy on hold, with no moves on interest rates or the reserve requirement. Fiscal policy ended the year with its customary splurge, as spending departments emptied their coffers.
Bank lending ended the year weak, with new bank loans surprising on the downside at 454.3 billion yuan in December. Non-bank lending accelerated, buoying growth but also raising concerns about a build up of credit in shadowy parts of China’s financial system and higher borrowing by local government financial vehicles.
The consensus forecast for 2013 is for a further moderate acceleration, with growth coming in around 8% for the year. But much depends on the choices China’s new leaders make on credit growth, property tightening and the size of the fiscal deficit. Further clarity on all of those areas should come at the National People’s Congress in early March.
– Tom Orlik, with contributions from MinJung Kim, WSJ.
Charting China’s Economy: The Fourth Quarter.Search China Real Time Report1 .Article Comments (113)
China’s economy has bounced back. A return to accelerating growth in the fourth quarter breaks seven straight quarters of declining growth and draws a line under concerns that the world’s second largest economy is heading for a hard landing.
To engineer the rebound, China’s government turned again to boosting credit and investment spending. But beneath the surface, there were also signs a rebalancing toward consumption may be underway.
China Real Time charts it out:
Growth in gross domestic product accelerated to 7.9% year-on-year in the fourth quarter, up from 7.4% in the third. The sequential growth rate showed signs of stabilization, with annualized quarter-on-quarter growth at 8.2%, down from 8.7% in the third quarter.
Investment bank economists continued to calculate their own quarter-on-quarter growth rate. Wang Tao, China economist at UBS, saw an even more positive picture, with growth accelerating to 8.6% in the fourth quarter from 8.0% in the third.
Real economy indicators like electricity consumption, one of the measures premier in waiting Li Keqiang said he uses to track growth, and steel production, also pointed to a strengthening economy.
For the year as a whole, GDP growth of 7.8% was down from 9.3% in 2011 and the slowest rate of growth since 1999. Ma Jiantang, head of the National Bureau of Statistics, said there would be no return to the era of super rapid growth, and China should aim for something between 7% and 8%.
One reason growth has slowed: a shrinking workforce. Mr. Ma said that China’s working age population shrank by 3.5 million in 2012. Off a total of more than 900 million that might not seem particularly alarming. But it signals an important turning point from an expanding to a contracting pool of workers.
Key to the recovery – strong investment in the real estate and infrastructure sectors.
After almost three years of strict controls, China’s real estate sector is showing signs of springing back to life. Sales had a strong quarter, with floor space sold rising 32% year-on-year in November. Sales for Vanke, China’s biggest developer by revenue, were also up more than 100% in December.
Local government investment vehicles – the heroes of the 2009-10 stimulus, and the villain of subsequent concerns about bad debts and bridges to nowhere – were back on the stage. Investment in roads and railway picked up from lows earlier in the year.
Manufacturers were less optimistic, with overcapacity and rising debts denting investment growth in the sector. Lan Shen, one of the China economists at Standard Chartered, notes that manufacturing investment decelerated to 16% year-on-year in December, down from 20.4% in November.
But with more real estate and infrastructure construction underway, industrial output still rose to 10.3% year-on-year growth in December, up from 10.1% in November and a low of 8.9% in August.
Zhang Jianping, a researcher tied to the powerful National Development and Reform Commission, was optimistic about the scope for more capital spending. “This year’s investment growth will be similar to 2012 as room for investment remain large due to the gap between western and eastern china, and between urban and rural areas,” she said.
Labor markets tightened in the final quarter of the year. Data collected by the Ministry of Human Resources and Social Security from local employment bureaus shows the ratio of job opportunities to job seekers rising to 1.08, up from 1.05 in the third quarter and matching the previous peak in the first quarter of the year.
That supported continued rapid increases in wages. Average wages for migrant workers were up 11.8% year-on-year. Urban household disposable income rose 12.6% for the year – outpacing growth in nominal GDP. Higher wages supported robust growth in consumption.
Electrical appliance retailer Gome, which faced tough times last year as a weak housing market put washing machine sales into a spin, said they thought the worst could be behind them. A property market uptick will have a positive impact on the appliance market, a spokesman for the company said.
All of that raised hopes that the long awaited rebalancing of China’s economy toward a stronger role for household consumption might finally be underway. Janet Zhang at Dragonomics noted that consumption accounted for 4 percentage points of China’s growth in 2012, higher than the 3.9 percentage-point contribution from gross capital formation, with exports dragging the total down.
Foreign demand showed some signs of recovering, with exports bouncing to 14% year-on-year growth in December, up from 2.8% in November. But with matching numbers from trade partners not quite so impressive, there were doubts about the accuracy of the data.
Louis Kuijs, China economist at Royal Bank of Scotland, finds a discrepancy between Chinese data on exports to Hong Kong, and Hong Kong data on imports from China. Whilst not conclusive proof that China’s export data is off, Mr. Kuijs concludes it’s possible export growth in the final months of 2012 is out by as much as 4 percentage points.
China’s imbalance with the rest of the world ticked back up. The trade surplus for 2012 grew to $232.8 billion, up from $157.8 billion in 2011. The politically contentious trade surplus with the U.S. rose to $219 billion from $202 billion.
The yuan ended the year on a tear. After depreciating against the dollar for several months of the year, China’s currency hit an annualized month-on-month appreciation rate of about 3.5% in November and December. For the year as a whole, that was still only enough to leave the yuan up 0.2% at 6.2855 to the dollar.
Inflation showed signs of rearing is piggy head, with consumer prices up 2.5% year-on-year in September, acceleration from 2% in November. Food prices, which were up 4.2%, were the main culprit. Analysts worried that the “pig cycle” – a term for the pattern of pig production, not a 4-H exhibit – had turned, threatening a further increase in prices over the year.
With growth on track, partly thanks to rate cuts earlier in the year, the central bank kept policy on hold, with no moves on interest rates or the reserve requirement. Fiscal policy ended the year with its customary splurge, as spending departments emptied their coffers.
Bank lending ended the year weak, with new bank loans surprising on the downside at 454.3 billion yuan in December. Non-bank lending accelerated, buoying growth but also raising concerns about a build up of credit in shadowy parts of China’s financial system and higher borrowing by local government financial vehicles.
The consensus forecast for 2013 is for a further moderate acceleration, with growth coming in around 8% for the year. But much depends on the choices China’s new leaders make on credit growth, property tightening and the size of the fiscal deficit. Further clarity on all of those areas should come at the National People’s Congress in early March.
– Tom Orlik, with contributions from MinJung Kim, WSJ.
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