Facts on the ground don't tally with China euphoria
By Simon Hunt
May 2009:- There is a chorus of optimism that China’s growth will approach the government’s stated objective of more than 8% this year. Many analysts are thus becoming increasingly optimistic and stock and metal markets are surging. Inconsistencies with the reported data, however, call for more caution about growth prospects than the consensus is prepared to accept. Official data will undoubtedly match government’s objectives but the real issue will be both the quality of that growth and what it actually means.
Reasons why a more cautious view should be adopted and we are sceptical that China will grow by 8% to
8.5% this year are:
1. Electricity consumption fell by 4% in the first quarter, year-on-year and 3.6% in April.
2. OECD leading indicators point to downturn in the first half of this
3. Exports in tonnage terms probably fell by around 25% in the first quarter and has continued to slide.
4. Private sector investment and consumption will suffer from continued export
5. Wu Dongying, Director of Baosteel’s Economic and Management Research Institute said: “This government investment cannot make up for the drop in private sector investment.”
6. Cao Jianhai, professor at the Chinese Academy of Social Sciences and, known as an expert on property, believes that real estate prices may halve over the next two years. Average urban prices were down by 1.3% in March, year-on year. Sales are rebounding from depressed levels, but Mr Cao believes that the rebound is unsustainable. It is being driven by short-term government support policies, unrealistic expectations and some fraudulent behaviour, he warns.
7. SAIC, China’s largest carmaker, said that the outlook for the full year “is not
optimistic with lots of uncertainties ahead”. Despite the recent rebound. China’s vehicle market is expected to be flat this year at 9.35 million vehicles SAIC predicts.
8. The World Steel Association forecasts a fall of 5% in China’s steel consumption this year. Steel prices in China are at a new cycle low. Angang Steel expects a large loss in the first quarter.
9. PetroChina reported a refined oil drop of 15% in the first quarter compared with last year because “domestic demand weakened.”
10. Consumer confidence remains weak. In March this year, it continued falling month-on-month and, compared with a year ago it was down by 9%. The March consumer confidence index is at its lowest since the SARS epidemic of 2003.
11. Companies have more orders on their books, but the orders are all short term.
12. “Retail sales were up 16% in real terms in the first three months compared with the same period last year. However, these retail-sales data include government and corporate purchases, which have both been boosted by stimulus measures. “
13. “Anecdotally, many retailers say sales growth started to slow after the Olympic Games in August 2008, and that this year is tough.”
14. “With scarcely any wage growth likely this year, it is difficult to see consumption continuing to expand at the double-digit pace, it maintained from 2004 to 2008.”
Simon Hunt Strategic Services visits China regularly and has numerous internal contacts
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