China this week delivered some of its weakest data since the global financial crisis. Industrial production in January and February grew by an annual 6.8%, down from 7.9% in December and the poorest performance since December 2008. Fixed asset investment growth came in at 13.9% year-on-year, the slowest since 2000.
Retail sales also disappointed. Property transaction volumes slipped by almost 17% and unsold apartment inventory rose to another record. Consumer price inflation ticked up to 1.4% in February, but producer prices fell by 4.8% in February alone, a six-year low.
What the commentators said
China has been trying to engineer a shift away from debt-fuelled investment to a more consumer- and services-based economy. But “the risk has always been that what starts as an engineered slowdown from Beijing could spin out of control as consumers and businesses lose confidence and asset prices fall”, said Alex Frangos in The Wall Street Journal.
Given that, it’s “troubling” that the government’s latest efforts to bolster the property market – by reversing restrictions imposed when it was overheated – have failed to gain traction. Subdued buying and building activity is becoming a brake on growth and on employment. Fiscal tightening by local governments isn’t helping either.
Juicing growth implies loosening lending restrictions enough to blow up the debt bubble again. But this may be easier said than done. China’s total debt load is already at 282% of GDP, higher than the figure for Germany or America, according to consultants McKinsey.
The economy is now “saturated” and getting less traction out of debt, said Ambrose Evans-Pritchard in The Daily Telegraph. Each extra yuan of credit produced 0.8 of a yuan of growth in 2008. Now it can only generate 0.2. In any case, with inflation low and falling, the real value of corporate and household debt will rise, which portends a further hit to spending and investment.
The state has already downgraded China’s GDP growth target for this year to “around 7%” – a figure it may have to revisit in the not-too-distant- future.