China’s economy roars back ... but it’s ‘smokestack’ industries and debt that’s driving growth
Premier Li Keqiang’s hopes of shifting focus of economy to service sector, high-tech industries and greater consumption appear to be on hold, say analysts
Proxies for growth once favoured by China’s premier are bouncing back amid a stabilisation in smokestack industries.
Electricity use, rail cargo volume and bank loans - combined in a weighted average known as the Bloomberg Intelligence Li Keqiang Index - are collectively at the highest level in three years.
While the strength shows fiscal and monetary stimulus is putting a floor under expansion, it is also evidence that stabilisation is reviving industries such as steel and property that don’t really fit plans to shift to more reliance on services and consumption. Another wrinkle is that some crucial new economy drivers are looking slightly less robust.
“The smokestacks are billowing again as the old economy comes roaring back,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings in Hong Kong. “That can only be temporary, being fuelled by an ultimately unsustainable build-up of debt. The key to lasting development is the new economy, the gizmos and services of future consumption, but that’s seemingly on hold for now as the old economy gobbles up credit.”
Reports out on Thursday will give a fresh look at how factories and services fared in November. The official manufacturing purchasing managers index and a private reading from Caixin Media and Markit Economics will both edge down to 51, according to economists surveyed as of late Tuesday, near the prior month’s two-year high of 51.2 for both. Numbers above 50 indicate improving conditions. Services rose to 54 in October.