MONTREAL - Chinese economic performance
for the first two months of 2012 not only was
below that for the same period for 2011 but also
mostly failed to meet consensus expectations,
according to the latest cycle of statistical
releases from Beijing this past weekend.
In the battle between hard-landing and
soft-landing discourses on the future of the
Chinese economy, the new statistics play more into
the soft-landers' narrative, although they also
provide fodder for the more cautionary story being
spun by the hard-landers.
To mention a few
specific indicators: industrial output was up
11.4% year-on-year in the combined
January-February period as against last December's
year-on-year 12.8% rate (November, 12.4%; October,
13.2%) and the consensus expectation of 12.3%;
fixed asset investment (which accounted for over
half of
China's gross domestic
product in 2011) was up 21.5% year-on-year as
against December's year-on-year 23.8% rate and
barely beating the consensus expectation of 20%;
while retail sales were up only 14.7% as against
the December's 18.1% and consensus expectation of
17.5%.
Still more striking was the
reversal of China's trade balance, from a surplus
of $6.5 billion in January to a deficit of $31.5
billion in February. This is the largest monthly
deficit since 1989 and an impressive mark even if
it can be somewhat accounted for by commodity
prices (mainly oil but also copper) and base
effects. Exports were up 18.4% but imports soared
39.6%, according to the People's Daily Online.
The official Purchasing Managers' Index
(PMI) compiled by the China Federation of
Logistics and Planning improved to 51 in February
over 50.5 in January, still above the 50
"break-even" level between expansion and
contraction. However, the privately calculated
HSBC/Markit PMI, which follows a different
methodology, was still in mild contraction at 49.6
in February, although this was up from 48.8 in
January.
The People's Bank of China last
month lowered the required reserve ratio, the
amount of capital banks must keep on hand as a
proportion of total deposits, by 0.5% in order to
free up loans for the interbank market to counter
growth deceleration. It was the second time in
three months that they did so.
Now the
National Development and Reform Commission has
declared the 2012 target for money supply growth
(M2, ie money in circulation plus travelers'
checks plus demand and savings deposits and
checking accounts plus money-market funds and time
deposits for individuals) at 14%, down from 16% in
2011.
Also last month, according to the
Financial Times, regulators told state banks to
roll over local government debts incurred during
the 2008-10 stimulus effort in order to give them
time to find a more comprehensive solution to the
problem, according to a Financial Times report.
The consensus view is that this will not obviate
central government intervention in the years to
come, to assume or otherwise support the local
government debt burden.
That eventual move
is likely to afflict further an increasingly
unsteady banking sector, to stabilize which the
leadership is seeking to transition to a domestic
consumption-based growth strategy from the current
export-based one. Whether this "rebalancing" will
occur quickly and seamlessly enough is the crux of
the dispute between the hard-landing and
soft-landing analysts of the Chinese economy.
That question is at the original of all
the commentary over the lowering of the planned
annual growth rate from the canonical 8% level,
long advertised as necessary to absorb new
entrants into the labor market, down to 7.5% for
2012.
Minister of Human Resources and
Social Security Yin Weimin said last week that
about 25 million people will join the workforce
this year, half of whom will be university and
college graduates, who will be targeted with
specialized training programs along with rural
migrant workers.
Even if Chinese economic
statistics have a built-in bias in favor of
overfulfilling normative growth targets, the
Chinese stock market is anticipating continued
difficulties in the near term. It does not yet see
a possible improvement in the third quarter of
2012 as continuing strongly into the fourth
quarter.
The bellwether Shanghai Stock
Exchange Composite (SSEC) equities index closed
Monday at 2,434, up 12.5% in the past nine weeks
(including the one-week closure to celebrate the
new year) but so far unable to penetrate the
medium-term technical resistance at 2,460, beyond
which lie further resistances at 2,530 and in the
low 2,600s.
Short-term technical
indicators turned negative last week and a
definite break below the long-term support just
above 2,350 (based July 2010, arguably 2,320 based
February 2009) would augur ill.
Dr
Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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