This morning has seen a barrage of economic data released by the National Bureau of Statistics in China. This gives us an opportunity to see if they are catching the economic cold that we have been observing developing amongst us evil western capitalist imperialists. According to the rhetoric things are going really rather well.
In November, under the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, all regions and departments implemented the decisions and arrangements made by the CPC Central Committee and the State Council, adhered to the requirement of high-quality development, stuck to the general working guideline of making progress while maintaining stability, adopted the new development philosophy, deepened the supply-side structural reform, and intensified efforts in policy implementation to maintain stability in areas like employment, financial sector, foreign trade, foreign investment, domestic investment, and market expectation. The economy performed within the reasonable range and maintained the generally stable and growing momentum.
That is quite an opening sentence to say the least! Let us add to that with some perspective as we look back.
Next week marks 40 years since China opened up its economy to the world. It’s economy has grown to 80x the size of its 1978 version. For comparison, the U.S. has grown 8x. ( @DavidInglesTV)
So the rhetoric fits that but as we shall see fits what is currently taking place much less well.
Today’s Data
Industrial Production
Whilst the growth rate would be loved by many this is China and things are not what they used to be.
In November, the real growth of the total value added of the industrial enterprises above designated size was 5.4 percent year-on-year, 0.5 percentage point slower than last month.
This wrong-footed expectations based on the ongoing stimulus programme and was the lowest reading since early 2016. In terms of this year the annual growth rate has fallen from the 7.2% of January to a period of apparent stabilisation around 6% and now another leg lower. In terms of a breakdown we were told this.
In terms of sectors, the value added of the mining increased by 2.3 percent on a year-on-year base, the manufacturing grew by 5.6 percent and the production and supply of electricity, thermal power, gas and water grew by 9.8 percent.
Retail Sales
So with production falling was there a potential boost from consumer demand?
In November, the total retail sales of consumer goods reached 3,526.0 billion yuan, a year-on-year rise of 8.1 percent, 0.5 percentage point slower than last month.
If we switch to Reuters we see that it has been quite some time since growth has been at this level.
Retail sales rose 8.1 percent in November from a year earlier, data from the National Bureau of Statistics showed on Friday, below expectations for an 8.8 percent rise and the slowest since May 2003. In October, sales increased 8.6 percent.
If we look at the pattern we see the recent peak was 10.1% in March and the early part of the year saw several readings comfortably above 9%.
From January to November, the total retail sales of consumer goods grew by 9.1 percent year on year.
The official data set also gives us an idea of the scale of urbanisation in China now.
Analyzed by different areas, the retail sales in urban areas reached 2,999.0 billion yuan, up by 7.9 percent year-on-year, and the retail sales in rural areas stood at 527.0 billion yuan, up by 9.3 percent.
I doubt you will be surprised to learn what was particularly pulling the numbers down.
Auto sales fell a sharp 10.0 percent from a year earlier, in line with industry data showing sales dived 14 percent in November – the steepest drop in nearly seven years. ( Reuters).
Slowing auto sales on China are part of a pattern that has rumbled around the world this year. Only yesterday there was news about Ford closing a plant in Blanquefort in France and planning job cuts in Saarlouis Germany.
Service Sector
This was not as weak as the others but has also fallen in 2018.
In November, the Index of Services Production increased by 7.2 percent year on year, the same speed as last month………From January to November, the Index of Services Production increased by 7.7 percent year on year.
Taxes
Another way of looking at economic performance is to analyse what a country can collect in taxes and at first this looks good.
China’s fiscal revenue rose 6.5 percent year-on-year to 17.23 trillion yuan (about 2.5 trillion U.S. dollars) in the first 11 months of 2018, official data showed.
But it too has slowed quite a bit in the last couple of months.
The country’s fiscal revenue stood at 1.08 trillion yuan last month, with a 5.4-percent decline year-on-year, according to the Ministry of Finance.
The decline widened from a drop of 3.1 percent in October, the first fall this year.
In November, China’s tax revenue reached 805.1 billion yuan, down 8.3 percent year on year, compared with a 5.1-percent decline in October, the ministry said.
Some of this has been driven by the tax cuts applied to try to stimulate the economy so we will have to wait and see how this fully plays out.
Money Supply
Reuters updated us earlier this week.
Broad M2 money supply grew 8.0 percent in November from a year earlier, matching forecasts and October’s pace.
Adding to signs of stress on balance sheets and faltering business confidence, M1 money supply rose just 1.5 percent on-year, the weakest pace since January 2014. M1 reflects both the strength of corporate cash positions and whether they may be building up funds for possible future investments.
That is a fascinating perception of narrow money. What we would expect from such data ( the growth rate exceeded 10% in late 2015 and much of 2016) is for it to apply a brake to the Chinese economy and that is exactly what it appears to be doing. Furthermore the brake appears to be tightening.
Switching to broad money trends and subtracting inflation we get a suggestion that future economic growth will head towards and maybe below 6%.
Comment
Whilst the rhetoric may be different China has itself a dose of what the western capitalist imperialists are suffering from in 2018 and that is slower narrow money supply growth. We can argue about definitions and circumstances but as we look around Europe, the US and now China it seems the rhythm section are hammering out the same beat. There are different responses because countries start from different growth levels. For example the impact on France seems to have sent production into negative territory if this morning’s Markit business survey is any guide whereas Chinese production is still recording a growth rate above 5%.
But the direction of travel is the same and China has got used to high growth rates so there will be indigestion from the changes. So we can expect more stimuli and if the recent speeches from the PBOC are any guide some interest-rate reductions I think. They will be a bit late for the next few months though.
And so it begins?
China To Lift Retaliatory Tariff On US Cars For Three Months -Had Imposed 25% Retaliatory Tariff On Cars -To Lift Tariffs From On Jan 1 ( @LiveSquawk )