China’s economy worse than it seems - even before trade war bites
Analysis of provincial figures indicates growth in many parts of the country may be less robust than the headline figures suggest
A close look at China’s regional economic performance suggests that the economy is in worse shape than its headline figures imply even before the full impact of the trade war with the US has been felt.
Central government figures gave a national inflation-adjusted growth rate of 6.8 per cent for the first half of the year, compared with 6.9 per cent in the same period last year.
However, a review of local economic data by the South China Morning Post has found signs of a broad slowdown in the world’s second biggest economy, with some parts of the country stagnating or even contracting.
It is a challenging situation for Beijing to manage and makes China vulnerable in the face of escalating trade hostilities from US President Donald Trump. China’s official manufacturing purchasing managers’ index fell to a five-month low of 51.2 in July, the National Bureau of Statistics said on Tuesday.
The Chinese government has already unveiled a series of measures designed to stimulate growth and the issue is likely to be high on the agenda at the Politburo’s summer policymaking meeting, although details of the gathering are not released in advance.
“The impact of the trade war [on China’s economy] is definitely negative, and the Chinese leadership at the Politburo meeting may discuss more fiscal spending and introduce more stimulus measures,” Iris Pang, Greater China economist for ING Wholesale Banking, said.
The reliability of provincial economic data has long been called into question, and the combined GDP figures from the provincial-level jurisdictions usually give a combined total greater than the national figure.
According to the inflation-adjusted growth figures for the first six months of the year from 29 provinces, only 15 fared better than the national average, compared with 21 during the same period last year. The number of provinces below the national average rose from seven to 12 during the period.
Jilin, a rust belt province bordering North Korea, reported only a 2.5 per cent rise in headline growth in the first half, the lowest of all reporting jurisdictions.
Other areas that recorded growth rates of below 6 per cent include Inner Mongolia, Tianjin, the northeastern provinces of Heilongjiang and Liaoning, the northwestern province of Qinhai and even Hainan, the southern island that has become a centrepiece of China’s efforts to open up its economy.
In Inner Mongolia, the inflation-adjusted figures show growth of 4.9 per cent in the first half of the year but the nominal figure showed GDP fell by 8 per cent, from 847 billion yuan (US$124 billion) in the same period last year to 778 billion yuan this year.
Nationwide, CPI inflation stood at 2 per cent for the first half of the year.
In January this year Inner Mongolia admitted it had inflated its industrial output and fiscal revenues for 2016, and delayed the release of its first-quarter data.
If measured by nominal output, the northwestern province of Qinghai also reported a modest contraction of 0.6 per cent.
In China’s costal areas and economic power houses growth appears less robust when looking at the nominal GDP rather than the inflation adjusted figures.
In Guangdong, the largest provincial economy, output in the first half was 4.63 trillion yuan, which was 10.35 per cent higher than a year earlier but two points down on the year before.
However, the official inflation-adjusted figure showed less volatility, with growth of 7.1 per cent compared with 7.8 per cent in the first half of 2017.
In Zhejiang, another export base, nominal GDP in the first six months of this year was 2.57 trillion yuan, a rise of 9.8 per cent from a year earlier.
The figure looks healthy, but it was almost three percentage points lower than the province’s nominal GDP growth in the first half of 2017.
But once again, the headline figures painted a different picture, with growth slowing to 7.6 per cent compared with 8 per cent in 2018.
While Chinese provincial GDP figures are often less trustworthy than the nationwide data due to political intervention, they can paint a general picture of how the economy is doing across the country.
China’s State Council last week decided to adopt a “more proactive fiscal policy” and to speed up raising and spending 1.35 trillion yuan for local government infrastructure projects.
The measure is part of a broader package to “handle uncertainties in the external environment” – a euphemistic reference to the trade war with the US – and keep economic growth on track, even though the 6.7 per cent growth recorded in the second quarter was comfortably within the target of growth of “about 6.5 per cent” for the year.
Analysts are watching how determined Xi Jinping will be in sticking to his agenda of tackling debt in light of the increased threats to economic growth.
“The Chinese government has clearly shifted towards a more accommodative policy stance since the beginning of July … however, this shift is still very modest in comparison to previous easing cycles,” Michelle Lam, a Hong Kong-based economist from Societe Generale, wrote in a note.
“The most important difference is that policymakers are still trying to move ahead with leveraging reforms, even though they have recognised that the process needs to be softened and slowed.”