Canary in China's coal mine stopped singing in January
Interpreting January's economic data from China is always tricky. There are too many distortions around the Lunar New Year holidays to draw conclusions with any confidence.
Even so, some of the numbers that have emerged over the last week are sufficiently ugly to have analysts seriously worried.
The trouble is that the Lunar New Year always messes up the numbers. Much of China's industrial production shuts down for a week. As a result, some orders are brought forward, other shipments are put back.
Consumer spending on some things - notably food - goes up over the holiday. Activity in other areas - like the property market - slackens.
And to make the data even more difficult to analyse, the Lunar New Year is a moveable feast. This year it fell in January, whereas last year it came in February, making a nonsense of comparisons with the same month last year.
Still, even though economists had been expecting key indicators for January to be suppressed by the holiday, many were surprised by the extent of the apparent slowdown in activity.
Consider China's trade figures. Sure, everyone expected a fall in shipments compared with January last year as a result of the holiday as well as soft international demand. And China's exports duly slipped by 0.5 per cent.
But the real shock was China's imports, which plunged by 15 per cent. As the first chart below shows, that's the steepest slump since 2009, when global trade all but ground to a halt following the implosion of Lehman Brothers.
Now some analysts fear the deeper-than-expected fall in imports may indicate a slide in China's domestic demand that bodes ill for the economy's performance this year.
Iron ore imports, for example, fell by 7 per cent compared with January last year; a drop that some analysts are taking as a reflection of slower demand for steel owing to declining property investment as China's real estate prices have fallen.
There are other signs that activity is softening. China's electricity consumption fell by 7.5 per cent in January compared with a year earlier.
Again, some decline was only to be expected as production lines shut down for the holiday. But such a steep slide may indicate that heavy industrial users of power such as aluminium smelters are scaling back production in the face of weaker demand from the construction industry.
It wasn't just trade and production that slowed in January. The first month of the year is usually the busiest for China's banks, as credit-starved borrowers rush to make the most of new loan quotas.
Not this year, though: in January banks extended just 738 billion yuan (HK$906 billion) in new loans. That is down 29 per cent from the 1.04 trillion yuan they lent in January 2011, a deeper decline than anyone expected because of the holiday alone. There is unsettling evidence that consumer demand may also be weaker than hoped.
As the second chart shows, China's sales of passenger cars slumped 24 per cent in January compared with the same month the year before, a steeper fall even than during the financial crisis of late 2008 and early 2009.
Meanwhile, property prices continue to weaken, eroding the wealth of China's middle-class consumers. Officials in Wuhu, a city in Anhui province, are so unnerved by the extent of the fall that they are offering to subsidise home purchases, in apparent contravention of the central government's repeated injunctions that restrictions aimed at cooling the market and bringing down prices must be maintained and enforced.
Yet for all Beijing's cooling efforts over the last year, consumer inflation remains stubbornly above the government's target zone, with the rate of price increases ticking up in January to 4.5 per cent, from 4.1 per cent in December.
That rise has been blamed on a seasonal increase in food prices before the Lunar New Year holiday. Even so, rising prices will still make the authorities more reluctant to ease monetary policy just yet, which could exacerbate any incipient slowdown.
Of course, it is still possible that last month's disappointing numbers were freak distortions produced by this year's early holiday, which will be ironed out when this month's figures are released.
But in the meantime, the canary in China's coalmine has stopped singing. Let's hope it hasn't expired.