Cries for more stimulus ring loudly in China because Chinese industrial output slowed to 6.9%. That is a number that any country in the world would be more than pleased with, but China’s target is 7.5%.
Why 7.5%? In fact, why should there be any targets at all? The economy is not a car that can be steered by bureaucrats to perfection.
China’s factory output grew at the weakest pace in nearly six years in August while growth in other key sectors also cooled, raising fears the world’s second-largest economy may be at risk of a sharp slowdown unless Beijing takes fresh stimulus measures.
Industrial output rose 6.9 percent in August from a year earlier – the lowest since 2008 when the economy was buffeted by the global financial crisis – compared with expectations for 8.8 percent and slowing sharply from 9.0 percent in July.
“The August data may point to a hard landing. The extent of the growth slowdown in the third quarter won’t be small,” said Xu Gao, chief economist at Everbright Securities in Beijing.
Some analysts believe annual economic growth may be sliding towards 7 percent in the third quarter, putting the government’s full-year target of around 7.5 percent in jeopardy unless it takes more aggressive action. Experts reckon output growth of around 9 percent would be needed to attain such a goal.
Reinforcing the tepid economic activity, China’s power generation declined for the first time in four years, falling 2.2 percent in August from a year earlier, and pointing to slackening demand from major industrial users.
Jiang Yuan, a senior statistician with the bureau, said the dip in August factory growth was due to weak global demand, especially from emerging markets, and the slowdown in the property sector that hit demand for steel, cement and vehicles.
The last time China suffered a “hard landing” was during the height of the global crisis, when economic growth tumbled to 6.6 percent in early 2009. That is far short of the near collapses which loomed over some developed economies, but still threw tens of millions of Chinese out of work, alarming the Communist Party’s stability-obsessed leaders into action.
China’s Economic Numbers
- Industrial Output: +6.9%
- Power Generation: -2.2%
- Retail Sales: +11.9%
- Fixed Asset Investment: +16.9%
- Mortgages issuance: -4.5%
End of the Line for China’s Growth
That set of numbers should raise concerns about overheating, not worries over economic slowdowns.
Yet, “The government must take forceful policy measures to stabilize growth,” said Li Huiyong, an analyst at Shenyin & Wanguo Securities in Shanghai.
It’s time to be realistic. China cannot and will not grow at 7% forever.
Stimulate Now, Crash Later
Calls for more stimulus with the above set of numbers is beyond ridiculous given China’s vacant malls, massive pollution problems, unused rail lines, reckless investment in SOEs, and even entire vacant cities.
Malinvestment is already rampant. Additional stimulus now to meet arbitrary growth targets will cause a crash later. China will be lucky to average 2% growth for a decade. Outright contraction in some years is not out of the question.
Mike “Mish” Shedlock