Slowdown? What slowdown?
China’s second quarter economic growth blew past forecasts, coming in at 11.9 per cent, or the fastest rate in 12 years.
Standard Chartered, whose chart is shown on the right, run through the numbers: retail sales up 16 per cent on the back of accelerating, double-digit growth in income per head – in both urban and rural areas.
Not only do the numbers suggest that China has no reason to slow: “these numbers also give weight to the view that it is taking off again, something we were not expecting at least to this extent,” says Stephen Green, Stan Chart’s senior economist.
He notes that China’s national statistics office did not re-introduce talk of ‘over-heating’ – suggesting that Beijing seem more at ease with fast growth than in 2004 to 2006.
They may be the only ones. Charles Dumas, at Lombard Street Research, calls China’s soaring trade surplus, combined with the export industry workers increasingly spending their wages, a cause of “gross overheating.”
The surplus, he says, was running at an annual rate of $350bn in the second quarter. Not bad considering it was just $160bn in 2005, and minor until 2004. Green also wonders why the burgeoning surplus doesn’t seem to have sunk in. He is predicting $320bn for the year, above most domestic economists, with the trade surplus rising 80 per cent year-on-year in the first half.
Worrying to both economists is inflation, 3.5 per cent across the second quarter but reaching 4.4 per cent in June. Non-food inflation remained subdued – but who cares, asks Dumas? Perhaps not in the US, but in much of the world and certainly in China, food is a core consumer item. Food, point out analysts at Sempra Metals, makes up about a third of a typical household’s spending in China, while Green adds:
Just about every boom cycle China has experienced since reforms began in the late 1970s has come to an end with inflation getting out of control and the government cracking down on credit. This boom is the longest yet.
China exports are 10 per cent of the world’s total, and an impressive 2.5 per cent of GDP. Gradualism isn’t going to cut it, says Dumas. The yuan needs a massive revaluation. Otherwise there’s a risk, he adds:
The problem is that China’s grossly aggressive mercantilist policy is likely to be met in kind. A bone-headed protectionist Democratic Congress will be joined by a bone-headed protectionist President of France to undermine the free trade on which all our prosperity depends — but especially that of the primary culprit, China.
To read the full note on China from Charles Dumas, visit FT Alphaville after 3pm on Friday, or go to the Lombard Street Research website for details of how to subscribe.