If you believe in economic data from China (no knowledgeable person does) then you will likely accept as fact this Reuters headline: China first-quarter GDP grows faster than expected 6.9 percent.
China’s economy grew 6.9 percent in the first quarter from a year earlier, slightly faster than expected, supported by a government infrastructure spending spree and a frenzied housing market that is showing signs of overheating.
Analysts polled by Reuters had expected the economy to expand 6.8 percent in the first quarter, the same pace as in the fourth quarter of 2016.
First-quarter growth was the fastest since the third quarter of 2015, with March data showing investment, retail sales, factory output and exports all grew faster than expected.
The strong reading should help underpin wobbly global financial markets but adds to worries that China’s government is still relying too heavily on stimulus and “old economy” growth drivers and is not doing enough to tackle risks from an explosive build-up in debt.
While China’s data has been largely upbeat so far this year, many analysts widely expect the world’s second-largest economy to lose steam later in the year as the impact of earlier stimulus measures starts to fade and as local authorities step up their battle to rein in hot housing prices.
Real estate investment growth accelerated to 9.1 percent in the first quarter from a year earlier, as the pace of new construction starts quickened despite intensified government cooling measures.
Though policymakers have pledged repeatedly to push reforms to head off financial risks and asset bubbles, the government is seeking to keep the world’s second-largest economy on an even keel ahead of a major leadership transition later this year.
The government is aiming for growth of around 6.5 percent in 2017, slightly lower than last year’s target of 6.5-7 percent and the actual 6.7 percent, which was the weakest pace in 26 years.
Economic data was up across the board in March, with factory output increasing at the fastest pace since December 2014 and firms stepping up capital investments after a slowdown last year.
Industrial output rose 7.6 percent in March, with steel output the highest on record, according to Reuters data, adding to evidence of a global manufacturing revival that is buoying prices of industrial materials from iron ore to coking coal.
How Long Can This Go On?
Supposedly, the weakest growth in 26 years is 6.7%.
Bear in mind, I charted 6.7% when that was the weakest growth for 26 years.
Four Questions
- Assuming one accepts those numbers, “how long can this last?”
- What is the outlook for global GDP growth?
- What happens to the price of steel when construction tapers off?
- What the heck is China going to do with all that steel when the US and EU are already pissing and moaning over China dumping steel?
By the way, please note that pension plan assumptions are in the general range of 6.5% to 7.5% annual growth.
Mike “Mish” Shedlock
Good questions. David Stockman reported from his trip to China: excess capacity and the devastating evidence of malinvestment (ghost towns, millions of vacant condos).
A friend lived in Shanghai a few years ago in one of 7 skyscrapers. Almost vacant! Someone has been losing trillions on such “investment”. But not much is being reported about these losses…
My take on all this empty stuff is that China is making sure there is work around. The survival of the Party depends on it. So, if need be they could demolish all the empty towns and block of flats and start all over again!
Only thing stopping that is the supply of resources, and who knows what that point is?
It used to be ‘dig a trench and fill it in’ to get your political thinking straight, so building skyscrapers to pull them down is definitely progress – sense of creativity and pride and all that. We’re not much better in the west sometimes. Wasn’t there a philosophy of humility in jumping over a bamboo each day as it grew, the day you could not you cut it down and started from ground level all over again?
Iceland in 16 Days: Day 16, Reykjavik Harpa Concert Hall Sunrise
https://mishmoments.com/2017/04/17/iceland-in-16-days-day-16-reykavik-harpa-concert-hall-sunrise/
China has a 50% savings rate, which allows their total capital to continuously improve. Even if they misallocate a fair percentage of it, capital still moves in the right direction.
By contrast, western bankers have discouraged saving, which prevents capital from moving in the right direction. On top of this, bankers have misallocated what capital already existed. The west continues to move backward with bank central planning of the economy, while China surges forward with 50% savings, and by adopting some elements of capitalism. Economic freedom is required for improvement, not political freedom. Hong Kong proved this while it was administered by Britain. Now mainland China is cloning Hong Kong’s success.
The global limit is finite natural resources. Those who produce trade goods most efficiently can continue to import natural resources for their factories. Bank central planning has proven to be inefficient.
+1
Of course, comparison to the West is pretty much a laydown in their favor. And in anyone else’s favor as well.
Compared to the West, the effective savings rate (as in, counting savings put aside in the form of children) of Greater Isistan, is quite impressive. Which is why “they” are growing and “we” are shrinking.
Whether the Chinese model is still beating those guys, is still an open ended question. If it is, it likely won’t be for long. As central planning, whether by Central Bank or Politburo, never provides more than a temporary illusion of an advantage.
Printing inflation has made children unaffordable to the non rich in many first world nations. Thus the indigenous population going backward in many places. Immigrants then move in and gradually take over. The religion and culture changes over time as one effect of printing.
+1
Beholdenment to the Financial, Real Estate, Legal, Political, Education and Health care rackets in general, has destroyed much of the West’s ability to produce much of anything anymore, including children.
Inflation, land use/zoning nonsense, regulations, health care costs; you name it. All of it aimed at allowing those in the above rackets to produce little to less than nothing of value, yet confiscate the lion’s share of the economy’s output from the ever dwindling number of those who remain big enough suckers to bother with anything productive anymore.
Such that when the Muzzies do run over whatever rotting corpse remains of the once-were-worthvile West; the result will be somewhere between a who-cares? and an outright blessing, for most Westerners.
China still has about 1/2 of its population living in rural poverty. So another 20 years or so ought to get ‘er done.
And with little policing of intellectual property rights, China is quickly becoming a globally dominant technology power. The future is China, pension plans ought to be investing there.
On their current track, they’re aging far too fast to be much of a “future.” Even faster than Japan did at a similar stage of development.
Ditching “one-child” policies does no good in the real world, as long as government is beholden to the real estate rackets As those will always lobby for “land use” and zoning nonsense, aimed at letting them charge rents as high as possible, for as little as possible of cheaply slapped together building mass. Hence, empty skyscrapers, since in order to sell them, prices would have too come down, bankrupting the rackets, and decreasing the pagan icon of nominal poppeti vaijue for the connected and already wealthy.
Hence, it’s simply too costly to have kids in zoned cities anywhere anymore. So people don’t have them. And go extinct instead. Ensuring the future will always belongs to guys like Erdogan.
Even assuming China economic numbers are inflated I believe their growth has come from evolving from an agrarian, barter type economy to an economy where all transactions are monetized and targeting labor intensive industries and dumping goods overseas, subsidizing Walmartians.
Crunch time comes when financial markets have a blowoff and those impressive savings go poof. Observers have been commenting on Chinese ghost cities for years.
Speaking of ghost cities and blowoffs there are almost 50,000 new condos in the SE Florida pipeline. I hope Yellin is ready to start investing some crisp new fiat to save the speculators again!
I forgot the link!
http://www.condovulturesrealty.com/info/blog/post/nearly-47750-new-south-florida-condo-units-in-development-pipeline-during-this-cycle/
Speculators – build and they will come.
Over speculation in SE Florida real estate is a good harbinger of a coming downturn.
I ended my reading at, “If you believe in economic data from Chona” Ah, no.
..
“not doing enough to tackle risks from an explosive build-up in debt.”
…
Debt
But, of course. China added $1 trillion in fresh debt. In Q1. 90 days.
Juggling chainsaws here, as long as they can avoid (hide) the losses the game continues.
This is so sad. China has stopped on net from buying UST with all the money we give them. Now they are making great headway with direct investment in the US. Fine, we get more jobs but our employers are communists.
I wish they would stop buying real estate. It is driving up the cost for new forming American families.
I recall reading that some economists would look at Chinese electric consumption as a way of trying to read the tea leaves on China’s real economic numbers
That is correct
Entire buildings, even cities are dark
On its face this is a report made by economic illiterates! Again and again it says that reality was “unexpected”, and yet the article never said why. Seasoned economists all know that it was because of the weather.
China’s GDP per capita – PPP is only $14k or so. Taiwan, with the same human stock and cultural background, is at $48k. Presumably inefficient SOEs and political repression will crimp China’s development at some point, but there’s no reason growth rates of 5%+ can’t continue for many more years.
“One Belt, One Road” – whole lotsa steels to be used up
Bulding skyscrapers
https://www.cambodiadaily.com/second2/chinese-firm-build-133-story-twin-towers-122784/
Building railroads
http://www.railwaygazette.com/news/infrastructure/single-view/view/construction-starts-on-china-laos-railway.html
The develop world, well,.. they’re developed, the rest of the world got lotsa catching up to do, and China is building them the infrastructure + Phallic symbols
Can they afford or need it? moot question as far as the chinese are concerned