Today's reading from Chinese tea leaves confuses pundits
Is China's speeding economy on course to careen off a cliff or ease to a gentle halt? The latest economic data appears to throw up more questions than answers.
Lending controls, investment bubbles and soaring fuel prices yield a volatile mix of indicators open to the widest possible interpretations.
Finding economists to agree is hard at the best of times, but the degree of divergence among China analysts these days is striking indeed. As Beijing ponders its next policy options, observers can rely only on continued uncertainty.
Official third-quarter GDP growth figures of 9.1 per cent released last week, down from 9.7 per cent in the second quarter and 9.8 per cent in the first, might be interpreted to mean that measures to rein in growth are working.
Not so fast. According to Citibank, these numbers reveal 'a very strong third quarter indeed', with few signs of a slowdown. In fact, it calculates growth accelerated on a seasonally adjusted basis to 11.2 per cent in the third quarter, from 8.9 per cent in the second.
Morgan Stanley also sees few signs of a cool-off. In a recent research note it draws attention to the turnaround in China's trade balance. After running a deficit of US$8.6 billion in the first quarter, it recorded an $11.5 billion surplus in the latest quarter, up from $1.1 billion in the second quarter.
Hot money flows have also returned on the back of renewed speculation of a yuan appreciation. Capital inflows grew in the third quarter to US$17.6 billion from $9.9 billion in the second quarter.
This works against efforts to slow the economy, as currency inflows fatten bank deposits and ultimately lending growth. Indeed, Morgan Stanley reckons both lending growth and fixed-asset investment picked up again last month.
The upshot is that China's economy is still powering above trend, pointing to another salvo of austerity measures and ultimately a longer and harsher correction.
Barclays Capital, while officially projecting a soft landing, nonetheless spells out a compelling argument that a hard landing is already underway. Trade surpluses are again the focus, but for different reasons. As this currently reflects slowing imports, rather than the usual runaway exports, the economists suggest investment demand could be slowing at a much faster rate than official data suggests.
Barclays also expects inflation could surprise on the downside. While last month's inflation figure of 5.2 per cent was a modest drop from 5.3 per cent in August and July, the primary source of inflation this year - food - should recede after a bumper harvest.
Meanwhile, the continued lack of pricing power in finished goods is entrenched by China's pronounced investment bubble.
Interestingly, Barclays concludes that one key outcome of a hard landing would be a halt to upward pressure on the yuan.
This certainly looks to be a contrarian call.