At this time one quarter ago, the partial data for the month of September were considerable more instructive than the national accounts. They confirmed the tentative acceleration signals Phat Dragon had perceived in the August figures, precipitating the statement that “… the partial data for the month of September, … , is entirely consistent with the view that the domestic economy is gradually disengaging itself from a cyclical trough.” There is nothing quite so significant to derive from the December partials, with the ‘turning point’ now an accepted fact. Yet the degree to which the data are again becoming somewhat internally dissonant, after a sustained run of essentially ‘one-way traffic’, should not be ignored. If this were a sharp, broad based recovery unfurling itself, there would be few nuances in the data so soon after the uptrend’s inception. The fact that a December update of year-to-date fixed investment growth can fall (albeit just 0.1ppt) is one symbol of potential frailty. The fact that retail sales volumes can decelerate (one again, albeit slightly) is another.
If you wash the effect of Xmas buying by the West, and the new boys in town (leadership changeover) out of the figures, what are you left with? Not much.
I cannot say whether this reflects diminishing returns from fixed asset juicing, or whether the authorities conviction is simply less pronounced in this round of pump priming. Probably a combination of both. I recall Phat Dragon’s previous observation; “If the authorities are able to keep these two major sectors out of synch (get out of the way while the private sector is doing well, and step in when confidence fades) then recessions and overt overheating can be avoided.” That assessment is likely to be tested now I feel.
Of course, I believe an outright contraction is unlikely, but I would say sub-4% official GDP growth prints, in the absence of much higher growth in household incomes, is virtually recessionary conditions in China.