Mixed signals


A 6.4% expansion in China’s economy during the first quarter reported on Wednesday matched the pace of last year’s final quarter despite widespread market expectations—and a good deal of evidence—that growth would decelerate. economists said the quarter’s rebound in activity such as factory production indicates Beijing is unlocking cash to slow the descent.

Instead of shrinking sectors such as steel production and real estate that were responsible for pushing debt to 300% of the economy, China is again relying on some of these sectors to power a rebound, the latest data show.

During the quarter, Chinese factories churned out crude steel and primary aluminum at a rate rarely seen at the beginning of a year, when Lunar New Year holidays normally slow such activity. New money also went into real-estate construction and apartment purchases. Retail sales of products such as household appliances grew, along with restaurant receipts. China’s long-battered stock market even reversed.

“Right now supply and demand are both booming,” said Wang Guoqing, an analyst at Lange Steel Information Research Center. Ms. Wang said crude steel and primary aluminum output was the highest on record for a first quarter. Authorities scaled back antipollution controls, she said, allowing crude steel production to jump 10% in the quarter.

Not every indicator improved in the first quarter. While an 8.5% gain in manufacturing output boosted headline GDP, private-investment growth lagged behind at 5.6%, a possible cautionary signal from individual business owners. Electricity production slumped compared with the final quarter of last year. Import growth of just 0.3% suggests weak demand in China. Car sales fell again, though down 4.4% compared with 8.5% in December. Developers bid less for land, with transaction volumes sagging more than 30% in March from the year earlier.

First quarter government spending was probably front loaded, economists said, meaning tomorrow’s money was being spent yesterday.

A dozen years ago, the Bear Stearns conference call was a leading indicator of the terrible troubles credit markets and the economy would have a year later, capped off by the government’s idiotic decision to let Lehman go down. China’s massive increases in leverage since that time could foretell big problems, but it’s hard to know since so much of it is a closed system.

One Response to “Mixed signals”

  1. feeblemind Says:

    “First quarter government spending was probably front loaded, economists said, meaning tomorrow’s money was being spent yesterday.”

    Kinda confirms your earlier SCMP post, does it not?

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