China doubles down on imbalance | FT Alphaville

China doubles down on imbalance

Here’s a quick round-up of the data out of China on Friday:

– Q2 GDP growth was in line forecasts: Reuters‘ poll had 7.6 per cent while Bloomberg‘s had 7.7 per cent.

– Fixed-asset investment growth accelerated sharply in June: for the first half it was 20.4 per cent, year-on-year, when the first five months of the year had registered only 20.1 per cent. This was much stronger than the expectation of 20 per cent, according to Nomura.

– Electricity output was flat for June.

– M2 money growth in June was 13.6 per cent for June (year-on-year), compared to 13.2 per cent in May.

– Loans reported for June were higher than expected.

– Retail sales growth slowed to 13.7 per cent for June (year-on-year), though this was better than most forecasts of about 13.5 per cent.

So… what does it tell us?

Well, firstly: we can probably maintain scepticism that the economy is rebalancing, at least by inference from the flourishing fixed-asset investment (FAI) rate. Nomura has charted the components of the FAI growth, both for June and for the first half overall, and it’s telling that a lot of the surge in June came from the deceleration in railway investment slowing down:

China's FAI components - June 2012 and H1 2012 - Nomura

That deceleration in railway investment growth could well become an acceleration: railway investment has been clearly identified for significant growth this year under the “mini stimulus”, with the Ministry of Railways having secured a Rmb2tn line of credit and planning to invest Rmb400bn this year, according to Standard Chartered back in May. In June, China Economic Net (via ChinaScope Financial) reported that figure would in fact be Rmb600bn.

And not forgeting of course that Premier Wen Jiabao made very clear earlier this week as growth weakened, that boosting investment was a bigger priority than rebalancing.

Either way, it will be interesting to see whether the country’s National Bureau of Statistics will again assert that consumption took a growing share of GDP growth in Q2. Such a claim was made (vaguely) about Q1, but we were again sceptical.

Eagle-eyed readers will have noticed that electricity output being flat in June seems a little at odds with some of the other data… or indeed, with any growth at all. Bloomberg has a big story on this today, but we’d also mention that Stephen Green of Standard Chartered and his colleagues wrote earlier this week that electricity output and GDP have disconnected twice before; it turned negative in both 1998 and late 2008/early 2009, while GDP growth continued on.

Most of all, this tells us that China’s data remains fairly unreliable. From the Bloomberg story:

The figures that go into China’s gross domestic product are “man-made” and “for reference only,” Li Keqiang, then a regional Communist Party head, said in 2007.

The comments by Li, now a vice premier who’s expected to become premier next spring, were revealed in a diplomatic cable published by WikiLeaks in late 2010.

Related links:
China lifts spending as growth weakens – WSJ
China is probably doing worse than the headline GDP suggests – Also Sprach Analyst
China lending jumps ahead of GDP data – FT Beyondbrics
China’s economic data disaster – FT Alphaville
China is not rebalancing a) yet, or b) enough – FT Alphaville