Signs of mounting strength in China’s economy cheered global markets this week. Exports rose by 7.2% year-on-year in August, helped by stronger growth abroad. August’s trade surplus was the highest for that month since 2008. The annual rate of consumer price inflation edged down by 0.1% to 2.6%. Producer price deflation eased to -1.6% on an annual basis.
Industrial production accelerated by 10.4% year-on-year, the fastest annual pace since March 2012. Retail sales growth ticked up to 13.4%. Forecasters now reckon the government will have little trouble meeting its 7.5% GDP growth target for this year.
What the commentators said
It seems that the government’s “mini-stimulus”, launched in July, is kicking in, said Kate Mackenzie on FT.com. Back then, after months of deteriorating data, the government cut taxes for small business, ramped up investment in the rail sector and pruned red tape for exporters. The “hard landing, for now, is off”, said Joe Weisenthal on Businessinsider.com. But the danger is that this rebound is “setting the economy up for a harder landing down the road”.
The main worry about China, continued Weisenthal, is that “tons of investment-led growth” has led to widespread overcapacity, lots of unused infrastructure, and a dire need to let demand catch up with supply; hence all the talk about shifting growth towards consumption rather than investment. But the latest data suggest “we’re back to investment-led growth, and adding more infrastructure where it is unneeded”.
A significant acceleration in infrastructure investment has been “the major push” of late, as Société Générale pointed out, while Capital Economics added that the most rapid gains in output last month came from state-owned firms. Overall credit in the economy is still growing at 20% year-on-year, said the consultancy. So “the omens for the short term are good”. But the economy’s structural problems are getting worse as this rebound has “strong echoes of 2009. The economy is once again being propelled, unsustainably, by state-led investment.”