Chinese economy in “outright deterioration”

Find below the new Westpac-BREE China and resources mega-almanac the introduction to which is sounding very gloomy indeed:

The Chinese economy grew at a rate somewhat below its potential early in 2014. The general impression left by the flow of data since the previous edition of CRQ has been one of outright deterioration. The respectable performance observed in the second half of last year, which at the time we suspected would be the peak for growth momentum in the current cycle phase, has been confirmed as such by the weak March quarter.


Growth in heavy industrial capacity slowed in early 2014, having managed to stabilise in the second half of 2013. Outlays on utilities projects have been disappointing in the year to date, given such spending looked somewhat underdone across the previous year. Countering that, investment in transport infrastructure was resilient in the March quarter, counter to expectations of a decline in growth.

Real estate investment has been weaker than anticipated so far this year. Housing starts ended 2013 with some momentum, which promptly evaporated in early 2014. Developers have been hurt by weaker sales. This has hindered their ability to move stock and control their liquidity in the tighter monetary environment. Housing prices and sales turnover have both been under downward pressure. The secondary dwelling market has shown the most obvious strains, but the market for new dwellings has not been able to stand completely aloof.


The heavy industrial sector has just completed a poor first quarter. Inventories rose sharply from December through February, with production plans slow to adapt to a slowdown in sales. As of March, output and sales have moved closer into line, implying that the worst is now past from a sequential growth perspective.

China’s exports to advanced markets are still growing faster than its total shipments, with Europe’s contractionary influence lessening and the US and Japan both now growing at reasonable rates. China’s imports from commodity producing countries are rising faster than its overall import bill, while imports of machinery and components for assembly are both looking sluggish.


In terms of external finance, the exchange rate depreciated in the March quarter as the People’s Bank prepared the ground for a doubling of the USD/CNY trading band. The year to date weakness in the CNY follows a 7.8% real trade weighted appreciation over 2013.

Despite the moderation in economic growth rates, China’s resources and energy use maintained an upward trajectory in 2013. Steel production increased by 9% to a record 775 Mt, contributing to iron ore imports reaching a record 820 Mt. Notwithstanding the implementation of policies to curb coal use, coal consumption also increased 2.6% to 3.61 billion tonnes in 2013.


Australia continued to play an important role in meeting the growth in China’s consumption, with increased export volumes registered across most commodities. Australia exported a record 442 Mt of iron ore and 42 Mt of thermal coal to China in 2013. Imports are playing an even more important role in meeting China’s overall mineral and energy demands, and in many commodity markets Australian producers have increased their market share in volume terms. This factor has mitigated the impact of lower prices on overall export earnings.

Some great charts in the book. Full report here.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. Those are nasty looking charts HnH. Seems as though this will be the year the bubble bursts. Next year our own bubble will blow

  2. Except I have only just recovered from the last blow up.
    Though could be worse I would not want to be a school /uni leaver anytime soon

  3. Yes I’ve seen it and yes, gloomy indeed.

    HnH as somewhat of a geopolitical buff, do you place any weight on the apparent growing China sabre rattling? Gut feel suggests to me there just may be more to it than we expect. I have also wondered if the timing of internal crackdown on corruption (as strategically selective as it is) is more than coincidence. Something ‘feels’ very fluid.

    ‘While reiterating calls for peaceful settlement of the dispute and joint development of resources, China has also made it clear that it is confident and capable of countering challenges to its territorial and sovereign integrity.

    All parties should also be reminded that ignorance of China’s resolve to defend its sovereign land will induce consequences too severe for certain countries to bear.

    Meanwhile, the wish to maintain regional peace and stability is shared by China and the majority of ASEAN members.

    The United States, which is strengthening military alliance with Manila and has a huge stake in the region’s stability, should comply with its promise to leave the countries concerned to settle their differences through bilateral talks.

    Instead of spoiling its increasingly-paranoid junior ally and muddying the waters, Washington should keep Manila within bounds and try not to stir up tensions by backing it in territorial dispute.

    After all, it won’t serve Washington’s interests if the dispute in the South China Sea spins out of control.’

    Any views?

      • Well said, Rusty – @#%&wit indeed. Now contemplating wars and how it might play to his/her business interests, devoid of any concern for the people.

    • Jesus, are you spruiking war again to support ore prices?

      Is there anything, anything at all you won’t stoop to?

      • Having an interest in the geopolitical plays in our region, particularly those involving our major trading partner, seem very reasonable.

        You must be an adherent of Krugman’s ‘alien invasion’ view to interpret my comment in such mercenary fashion.

      • Mark Out West

        3d1k didn’t see anything wrong with oiling the palms of the like of Saddam so he could buy the bullets to kill his and ours, so why would this issue of Asian nations trouble him????

    • intertubernet

      “I have also wondered if the timing of internal crackdown on corruption (as strategically selective as it is) is more than coincidence. Something ‘feels’ very fluid.”

      What are we talking about here? A shift in internal power to a more hard line/militarist faction – I.e. Corruption used as an excuse for a purge?

      Or just Clauswitzian realpolitik in a world where we’ve past peak oil?

    • @3d1k
      At the moment I believe China is just capitalizing on geopolitical distraction as the whole Ukraine issue unfolds. They are playing their cards smartly and putting in place drilling rigs etc knowing full well that the State department is too busy / distracted to provide any meaningful support to Manila. Once fully established Manila will look like the bad guy if they try to blockade the “exploratory” rig….regardless of how long it stays there.

      The problem now for China is to find a way to placate Manila and somehow compensate them for the loss. I get the feeling it’ll take the form of building a factory, offering jobs this strategy has worked well for the US in the past so why invent anything new. Isn’t it also what they are doing to south angry Australians for all the iron ore were shipping them?

      • Probably. There is a more general assertion of territorial rights taking place: Japan Vietnam Philippines with the China Seas taking centre stage.

        Ukraine has demonstrated the absence of effective protest from the West, no doubt an encouraging factor. Robert Kaplan (now at Stratfor) has written extensively on this region and particularly the importance of securing sealanes as of both a military and mercantile benefit.

        Just a bit of speculative musing to understand the machinations at play and maybe even a part of the commodity import surge seen in April…

      • Putin to visit China next week and official press are advising of a ‘substantial statement’.

        ‘The two sides will show willingness to firmly support each other to adhere to their own development path compliance with national conditions as well as strengthen strategic coordination on major international affairs,…’

    • dumb_non_economist


      The ONLY concern you have is not to have your paymasters boat rocked, your concern for other countries and for “peace” etc is humbug, you have never shown concern for ANYONE bar your own good self.

    • @3d1k its an interesting political move that when the country is about to hit tough times to reinforce unity through the creation of a common enemy. Wag the Dog was a great send up of this and wouldn’t surprise me if this is in the back of their thinking, particularly if the economy turns sour.

      I’m not a China expert but I hear that China’s politburu greatest fear is disunity. There’s an interesting series on sbs called China:triumph or turmoil which highlights this at the moment.

    • casewithscience


      I believe that the wartime customs provisions will mean that if China does get into a conflict with our allies, we will not be able to sell them iron ore. Would you suggest that we Rhett Buttler it?

      PS. As a former colony, the US and Philipines have such a strong connection, I don’t think the US would abandon negotiations to deal alone with the Chinese.

    • Ronin8317MEMBER

      Manila is just saber rattling, Vietnam will be the real flash point since the Chinese have actual physical and economic asset (an oil rig) in the disputed area.

      Vietnam currently doesn’t have the naval power to threaten China, however if the US gets involved we will see real firework. Australia will be forced to choose a side. If we choose the US, the effect will be catastrophic for our Chinese export.

  4. BubbleyMEMBER

    Wars are excellent for the economy.

    America went through some great booms because of them. Post WW2, Korea, Vietnam and even invading tiny little Grenada helped in the 1990’s

    • Also Germany had a boom in the ’30s in part due to military buildup in anticipation of WWII, and their Wirtschaftswunder was only possible due to post WWII reconstruction.

    • casewithscience

      Is one life worth a dollar, a million, a trillion?

      War may motivate economies, but that is no excuse for having them.

  5. I thought this was an IRON ORE RESPONSE site for bloggers view on iron ore pricing etc and not the rubbish that is being posted, especially by 3d1k. I have a question for you 3d?


  6. This is the eleven hundred and eleventhleventh post I’ve read in the past year alone – all predicting, with lip-smacking glee – the demise of China’s economy. The Economist alone has predicted 56 such ‘hard landings’ in the past 3 decades.
    When will we begin to study and understand the Chinese economy on its own terms, rather than as we imagine it to be? James White at Colonial First Capital is the only economist I know who’s even attempted to do so.
    Perhaps the reason we resist so mightily is that we fear we will discover that an honest, competent government can macro-manage the world’s largest economy far better than Mr.Market.