Friday, October 30, 2015

Thinking About China: Growth Stories

Chinese economic growth is slowing.  The only question is by how much.  

Last week, China reported that its third-quarter growth rate was 6.9 percent on an annualized basis.  This was down from 7 percent in the first half of 2015.  You can see the official trend in the chart below.  

Here's my problem with the chart:  I'm not sure I believe it.  

The Chinese growth target for this year was 7.5 percent.  Some China watchers believe the real growth rate at this point is between three and four percent.  

China has absorbed some shocks this year.  It is possible that its government is trying to put things in an optimistic light.


"If someone told me that the real statistic for Chinese growth was zero percent, I would find that quite believable," a journalist told an American industrial group in a speech last August, two months before the recent GDP report. 

The journalist, China-based Adam Minter, described why official GDP reports might clash with facts on the ground.  According to a report on his talk:

     Minter cited a 2007 diplomatic cable leaked by WikiLeaks in which then-U.S. 
     Ambassador to China Clark T. Randt Jr. summarized a conversation he had with
     Li Keqiang, who at the time was the Party secretary of Liaoning.

     "(Gross domestic product) figures are manmade. . . . They're unreliable" and 
     "for reference only," Li was quoted as saying. 

     Minter said, "(Li) is now the premier of the State Council of China, the top person
     behind China's economic policies. . . . (Li) told Randt he focuses on three
     figures to evaluate the economy:  electricity consumption, rail cargo and the 
     amount of loans disbursed."

Minter said all three of Li's indicators had dropped substantially in the first half of 2015.  

"Things are very, very, very bad in China," Minter told the group.

(Minter is the author of "Junkyard Planet: Travels in the Billion-Dollar Trash Trade," which outlines how first-world recyclables are turned into valuable products in Asia.  He also contributes to major American publications and publishes a personal blog, ShanghaiScrap.)


Jefferies and Fitch Ratings said a slowdown in Chinese manufacturing was affecting inbound and outbound shipping volume and reducing cargo fees substantially.  (Each group took the reported 6.9 percent GDP growth number at face value and noted that China also had reported a six-month low rate of 5.7 annualized growth in industrial output.)

A Wall St. Journal article reported last month that U.S. exports to China are down, partly because China's three-percent devaluation of its currency has made dollar-denominated American products more expensive.  "September was the eighth straight month in which empty containers leaving (the Port of) Long Beach outnumbered those loaded with exports,"  the article said.

There are worries that if China's economy slows, an even worse worldwide slowdown will follow.  For the U.S., whose sales to China are less than eight percent of exports, this would be a smaller problem than, say, for Brazil, which already has budget problems and which counts China as its major export client, buying iron ore, soybeans and chicken. 

In other cases -- steel sales to the U.S., steel and solar panel sales to European countries, tire sales in India -- other countries' manufacturers and unions are complaining that China is dumping industrial products at below-market costs.  They believe China would rather operate its businesses at a loss to keep workers employed and citizens happy.  There are worries that China will drop the value of the yuan further to make its products more competitive on world markets.


Several of my friends do business in China.  Recent developments, among others, are interesting to them, but they seem to take matters in stride.

"It's always a wild time China," said one.  "Right now things are just wilder than usual."

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