This article published today in Yahoo Finance supposes a great summary about the current state of the Chinese economy. It discusses most, if not all, of the matters which the latest posts in this blog have referred to.
The article lists a series of events that happened during the first months of 2015 and are compared to their past equivalents:
- “– A 6.8% year-over-year growth in industrial production is “the weakest year-over-year reading ever (China’s IP data starts from 1995) outside the global financial crisis,” according to Goldman Sachs.”
- —> In our blogs, we recently discussed the year-over-year growth in industrial production (the threat for steel mills).
- –” Year-over-year retail sales growth of 10.7% is the lowest in over 9 years, according to IHS.”
- —> Consumption, another of the repeatedly mentioned factors, is brought up here. As we said, focusing in triggering consumption is imperative.
- ” A 13.9% year-over-year increase in fixed-assets investment is the lowest in 14 years, according to IHS.”
- —> China’s transition from investment to consumption-led expansion is clear.
- “The Producer Price Index fell 4.8% vs. the prior year, the steepest drop since 2009.
- —> Again, the steel crisis is bound to be reflected in the fall of China’s PPI.
- “Electrical consumption rose just 1.9% year-over-year after climbing 3.2% in 2014, the weakest in 16 years.”
- No comments.
About consumption and its relevance, the author states that policymakers should focus in “transitioning China away from an export-driven economy to one based more on internal consumption, i.e. a rising class of Chinese consumers. The ‘old’ Chinese export model adds to the world’s capital flows imbalances, which contribute to financial instability in the U.S., along with a corresponding effect on the balance of imports vs exports for the U.S.”
The article should help anyone who is not exactly updated as regards current events in China, and it encompasses topics that are mentioned in many other posts.
Sources: Yahoo Finance, China Daily Mail.
China seems to be naturally maturing a service/consumption economy. However, government seems to ignore this transition by devaluing its currency to induce more export-driven growth. Recent steel production comes to mind. The direction seems a little contradictory to the facts.
1. How can the government actually push for “rebalancing”? There are tools, but see if you can think up ones that might actually make a difference.
2. Has China devalued its currency? Check the BIS trade-weighted exchange rate calculations, and I think you’ll find that the RMB is stronger, not weaker, against the Japanese Yen and the Euro, among others.