The February data from China show that the economy is slowing faster than expected. Averaging January and February figures (to adjust for distortions caused by the timing of the New Year festival) shows that exports grew by just 6.9% year-on-year in the first two months – down from 14.3% in the fourth quarter and the slowest pace since the global crisis in 2009. Unexpectedly weak exports and strong imports in February caused the largest monthly trade deficit on record.
Inflation in the first two months fell to 3.9%, below the government’s 4% target, while industrial output growth was the lowest since mid-2009. Retail sales growth fell to an annual 14.7% and loan growth figures were the poorest since 2005. The government has now eased lending standards further in order to bolster the economy.
What the commentators said
The recent weakness in the global and local economy, along with February’s trade deficit, despite the seasonal distortions, mean that “Beijing is not going to allow the currency to appreciate to any great extent, if at all, from here”, said Fxpro.com. The yuan, up 8% against the dollar since the government allowed it to appreciate again two years ago, thus looks set to cause “renewed friction” with America, said Keith Bradsher in The New York Times.
On the domestic front, the data are “disappointing”, said Capital Economics. Even the high import figure masks weakness: imports for domestic use rather than processing and re-export saw a “sharp slowdown”. On the plus side, however, weaker growth implies “more concerted policy loosening”.
But the question is “whether the authorities have control over the economy”, said Stephen Lewis of Monument Securities. This sharp slide “has raised doubts on this score”.
Deflating a credit and property bubble “with carefully calibrated curbs [is a] feat that has eluded governments across the world”, said Ambrose Evans-Pritchard in The Daily Telegraph. So far the signs aren’t especially encouraging. Steel output has dropped to 1.7 million tonnes a day from two million last year; an estate agent in Guangzhou, a major city, has reported a 40% year-on-year fall in house sales in the first two months. “I watch the ‘soft landing’ with curiosity.”