Kate’s already noted some of the oddities in China’s latest GDP data.
But it’s worth re-emphasising the ongoing contribution of investment to the figures.
As Capital Economics observed on Monday, the bad news about the data really is that China’s economy shows no signs of weaning itself off its reliance on investment.
From their note:
• The second is that the composition of growth worsened last quarter. 5.9 percentage points (pp) of Q2’s growth came from investment, a massive increase on the 2.3pp contribution in Q1, and the highest since Q2 2010. The contribution from consumption dropped from 4.3pp to 2.5pp. Net exports had a negative contribution for the first time in a year.
• We previously argued that there seems to be a seasonal pattern that elevates consumption in Q1. As such, the apparent slowdown in Q2 may not be as dramatic as first appears. The big picture though is that investment, rather than consumption, remains the key driver of growth. (See Chart 2.) We estimate consumption growth at 5.6% y/y last quarter, the lowest in three years.
• All in all then, today’s figures were arguably something of a relief, despite being in line with consensus. But we would be more confident if we could see that China’s slowdown was being accompanied by a shift in the drivers of growth from investment to consumption. As long as investment remains the key driver, China’s economic imbalances continue to worsen. This in turn raises the threat of a disorderly unwinding of imbalances further down the road.
And here’s a useful chart that reflects the point:
We’ll be interested to see how this week’s TIC Data adds to this story. Also worth noting, it’s not just gold that China is using to effectively rebase the renminbi, and protect its capital from potential depreciation. In the last few months China has been the key additional player to come into the Bitcoin market, as this chart posted by Rob Minto at beyondbrics last week reflects:
We’d argue, a) because in relative terms these alternative stores of value are cheap in renminbi terms for Chinese investors, who have seen their purchasing power increase somewhat synthetically. And b) it’s a reflection of the fact that the Chinese have less confidence in the renminbi’s valuation than the rest of the world.
In short, it seems increasingly like the Chinese are expecting devaluation, not appreciation.
Chart of the week: why is Bitcoin so popular in China? – Beyondbrics
A big PBOC bluff? – FT Alphaville
China’s two-way liquidity risk: capital outflows – FT Alphaville
The cheapest thing going is gone – The Economist
Currency rises mean discounts on London homes for foreign buyers – FT