Qin Xiao, chairman of China Merchants Group and of the Asia Business Council, is worried.
He is worried about China — and specifically whether the Chinese authorities will be able to extricate themselves from their loose and stimulus-heavy monetary and fiscal policies of recent months. Here are some excerpts from his Thursday FT op-ed:
From a macro point of view, we still have an unbalanced global economy. The US consumes too much and saves too little. China’s problem is the opposite. Despite years of encouragement from government to spend more, many Chinese consumers continue to be more comfortable saving than spending. As Wen Jiabao, the Chinese premier, said just last month at the World Economic Forum in Dalian, China’s economic recovery “is not yet steady, solid and balanced”.
All of us applaud China’s far-reaching stimulus programme. But many in China cling to the belief that the export-led model that has worked so well for 30 years will remain largely untouched after the crisis. The US consumer, after all, has always come back, most recently after the dotcom bubble burst and the terrorist attacks of September 11 2001. But the longer global imbalances persist, the more painful the reckoning. Both China and the US must do more
. . .
While consumer prices are mostly under control, asset price bubbles are growing rapidly because of huge liquidity injections by governments around the world. Globally, there does not seem to be an exit strategy in place to drain this liquidity from the system. Certainly, in China, stock and property bubbles are a concern.
While we have avoided the worst recession since the Great Depression, we are probably heading for another asset bubble and more financial turbulence. What can we do? Compared with pouring money into the economy, draining money from the economy is a much tougher job for central banks. The dilemma is this: if we tighten monetary policy, there is a high possibility of a “second dip” next year; and if we continue the loose policy, another asset bubble might be not far away.
I do not believe a quick, steep bounce driven by fiscal fixed investment is a good thing for China. Nor is a moderate slowdown anything to be afraid of. Monetary policy must not neglect asset-price movements. Therefore, it is urgent that China shifts from a loose monetary policy stance to a neutral one.
And lo and behold — China’s third-quarter GDP statistics have just been released, and they show an 8.9 per cent growth compared with the same period last year.
Make no mistake, however. This is a growth almost entirely driven by government policies and stimulus packages.
Fixed asset investment, China’s main measure of capital spending, jumped a massive (and probably still questionable) 33 per cent. At the same time, however, exports are still contracting, falling 15.2 per cent in September, and 23.4 per cent in August. The trade surplus narrowed $45.5bn to $135.5bn.
Here are the relevant stats from the GDP release:
Investment in fixed assets enjoyed fast growth with acceleration of growth in investment in real estate. In the first three quarters of this year, the investment in fixed assets of the country was 15,505.7 billion yuan, a year-on-year growth of 33.4 percent, or a rise of 6.4 percentage points as compared with the growth in the same period last year. The investment in urban areas reached 13,317.7 billion yuan, up by 33.3 percent, or 5.7 percentage points higher while that in rural areas was 2,188.0 billion yuan, up by 33.6 percent, or a rise of 10.3 percentage points. The investment in the primary industry, secondary industry and the tertiary industry in urban areas went up by 54.8 percent, 26.9 percent and 38.1 percent respectively. In terms of the areas, the investment in eastern, central and western regions grew by 28.1 percent, 38.3 percent and 38.9 percent respectively. The investment in infrastructures was increased by a large margin. In the first three quarters, the investment in infrastructure (excluding electricity) went up by 52.6 percent, of which, that in the railway transportation, up by 87.5 percent, that in road transportation, up by 50.7 percent, and that in health, social security and social welfare up by 72.9 percent. In the first three quarters, the investment in real estate development was 2,505.0 billion yuan, up by 17.7 percent year on year, or a 7.8 percentage point higher than that in first half of this year.
The foreign trade continued to drop but the decrease rate obviously lowered. In the first three quarters of this year, the total value of imports and exports was US$ 1,557.8 billion, down 20.9 percent year-on-year. Of this total, the value of imports and exports in the first quarter down 24.9 percent, second quarter down 22.1 percent, and third quarter down by 16.5, with obviously narrowed declining rate. In the first three quarters of this year, the value of exports was US$ 846.6 billion, down by 21.3 percent; the value of imports was US$ 711.2 billion, down by 20.4 percent. The trade surplus was US$135.5 billion, down by US$ 45.5 billion year-on-year.
Like a Chinese dumpling then — China’s recovery is hot on the inside and cool on the outside.
All of which, we think, makes Qin Xiao’s concerns about a government exit even more relevant.
Related links:
China growth underlines rapid rebound – FT
On fixing China’s fixed asset investment data – FT Alphaville
Urban (commentary) combat in China – FT Alphaville
Chinese economic growth – Lex