China still building like bejesus

The National Bureau of Statistics just published the latest set of economic data for third quarter, which sort of disappointed the market.

The third quarter GDP grew by 9.1% in real term compared with the same period a year ago, missing expectation of 9.3%.  On a quarter-on-quarter basis, GDP grew by 2.3% in real terms, slightly faster than the 2.2% qoq growth in second quarter.

Although GDP was a miss, some components of it are still holding up.  Fixed asset investment year-to-date grew by 24.9% compared to the same period of 2010, slightly above expectations of 24.8%.  While we are seeing growth in real estate investment decline over time, we are still at elevated levels:

Industrial production for September increased by 13.8% compared to the same period last year, above expectations of 13.4%.  Although not a particularly good level compared to the past, it is still holding up:

Retail Sales for September increased by 17.7% compared to the same period of last year, also better than the expectations of 17.0%:

I do want to point out that a closer look at the latest trade figures reveals that the trade surplus actually declined in third quarter compared to a year ago.  That could be something which contributes to the apparent disappointment in GDP growth.

Despite missing expectations for the headline growth figure, parts of the economy are holding up better than expected.

It is not a welcome sign to see fixed asset investment to be holding up as we actually want to see that coming down more as a part of rebalancing, but retail sales and industrial production are better then expected, thus there are things to be cheerful about in this data.

The tricky part is that inflation remains at an elevated level, and the economy is probably not slowing enough yet, so that policymakers may not be able to ease monetary policy for the time being except for some selective easing towards small businesses (which may not be terribly effective).

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Comments

  1. ‘It is not a welcome sign to see fixed asset investment to be holding up as we actually want to see that coming down more as a part of rebalancing…’

    Who is the ‘we’. Not me, I assure you.

    Fixed asset investment may actually become an even more important component if global demand declines were to accelerate. Apart from something disastrous I can’t see any impetus to quell fixed asset activity when facing the prospect of a decline in global demand for manufactures. Rebalancing is still some way off and it is overly optimistic for any to have believed it should have already occurred.

    • Who is the ‘we’. Not me, I assure you.

      Fanboy is in mining. Enough said.

      Its in the interests of just about everyone — especially the Chinese people — that China rebalances. About the only people benefiting from the continued fixed-asset boom are Chinese property developers and speculators, corrupt party officials and Aussie miners.

  2. +1
    I wonder how long it will take to turn Aus around from a over-consuming, deb-laden, chronic CAD entity to one that is prudent, conservative, saving, CAS generating.

    What 2,3 generations? 50 60 years? Yet we expect China to turn its massive economy on a dime in 1 year?

    The fact is they have been trying to turn for a few years including all the massive infrastructure building as part of that long term programne.

    Not a criticism of anyone here at all. Just an observation of how generally everyone expects instant solutions to vewry long-term complex issues.

    • MontagueCapulet

      “Just an observation of how generally everyone expects instant solutions to very long-term complex issues.”

      My perspective on China’s predicament is based around the idea that are no quick or easy solutions and that the inability to implement a solution in any meaningful timeframe is the defining feature of China’s situation.
      .
      I don’t see China becoming a “consumer society” any time in the next twenty years. They pushed the export-led-growth model as far as it can go, then in 2008 they ran out of wealthy foreigners to sell stuff too, so they created an enormous building bubble to keep GDP ticking over. Now that approach is reaching the end of its usefulness and they can look forward to two decades of overcapacity and stagnation.
      .
      They’ve copied the Japanese approach and now they’ll get the Japanese results.

      • Rebalancing towards a more consumer-oriented economy has been a stated aim of the past two five year plans. Just because its in the plan doesn’t mean it will happen.

        In response to a developed-world recession, the Chinese authorities will reignite the building boom. They don’t know how to do anything else.

        This will no doubt please Fanboy, but will only inflate the bubble further, making the final bust bigger and more painful — for both China and Australia.

      • They pushed the export-led-growth model as far as it can go

        China does not have an export-led growth model. It has an investment-led growth model. This is clearly demonstrated in this table from Michael Pettis.

        China is becoming increasingly dependent on building stuff it doesn’t need, and Australia is becoming increasingly dependent on selling just two commodities to China: iron ore and coal.

  3. Montague as I’ve written elsewhere they are making changes everywhere including at factory worker level. However as we say it is a very slow ship to turn and as you surmise it may prove to be too late.
    I very much doubt they will ever become a consumer society as we understand it now. Let’s hope not anyway. There are not enough resources in the world!
    However our consumer, debt driven model is unlikely to last either.

  4. Yes, great article and great comments thread. Nice that so many people are “getting it”.
    Lorax said: “…..About the only people benefiting from the continued fixed-asset boom are Chinese property developers and speculators, corrupt party officials and Aussie miners.”
    MontagueCapulet said: “…..(China) can look forward to two decades of overcapacity and stagnation. They’ve copied the Japanese approach and now they’ll get the Japanese results.”
    EXACTLY. I don’t need to add anything to that except to say that there is one problem that economists SHOULD be becoming very familiar with by now, and are not: a “racket” in urban development always leads to BIIIG trouble, whether the racket is run by corrupt officials or “respectable” officials who are out to “save the planet”. The technical term is “planning gain”, but it remains a “racket” however you rationalise it or sanitise it.

  5. Hugh Pavletich won’t mind if I post something he said on another forum:

    http://globaleconomicanalysis.blogspot.com/2011/10/property-developers-hurting-in-china.html

    “Note within the article by Mish (Mike Shedlock) above “Housing math in China”, that in Shanghai at an astronomical $US7,500 per square metre, a 74 square metre apartment would cost $US567,418 (back from a square foot conversion). Median / average household incomes are not stated.

    It is likely too, these apartments have simply “stub services” and no internal fitouts. They are on paid up front rental leased land as well (the apartment owners interest in the land therefore diminishes through the term of the ground lease – likely 60 / 70 years for residential).

    Note that with a fringe starter home in Houston for $US140,000, you get on a 700 square metre freehold (not leased) serviced lot, with a 235 square metre new home, comprising 4 double bedrooms master with ensuite, separate dining and a double garage. All up development costs – $US600 per square metre – the house construction component below $US500 per square metre.

    Just in case you were wondering if there is a housing bubble / construction cost problem in China.”