Business World

Thursday 23 November 2017

Scepticism over China's growth

Kevin Hamlin

CHINA'S third-quarter growth may have been weaker than official data indicate, even amid increased signs that the economy is stabilising, according to analysts at Standard Chartered and Capital Economics.

A slowdown in electricity production and an "unimpressive" reading in a manufacturing survey are reasons why September's pick-up in factory output was "a bit difficult to believe," according to Standard Chartered.

Capital Economics said its own analysis indicated that the economy expanded about 6.5pc in the third quarter, below the 7.4pc year-over-year growth reported by the Beijing government this week.

Scepticism about China's data is resurfacing as the ruling Communist Party prepares for a once-in-a-decade leadership transition with a congress set to start on November 8 in Beijing.

An improving economy, after a seven-quarter slowdown, may bolster the image of top leaders and reduce the need for additional economic stimulus.

"The growth rebound is too good to be true," said Li Wei, an economist at Standard Chartered in Shanghai.

"Maybe the political agenda has played a role. If you are going to hold a board meeting, then of course you want to report a decent number. It's understandable."

The party congress next month and the meeting of the national legislature in March "should limit the risk of a double dip in China", he added.

Evidence supporting the official data included rising production and higher prices for both steel and cement on the back of increased project approvals, said Wang Tao, an economist at UBS in Hong Kong. Industrial output may have been helped by a rebound in export growth last month, part of so-called light industries that are not power-intensive, she said.

Li Keqiang, who may succeed Wen Jiabao as premier in March, was quoted in 2007 as saying he watched data on power, rail cargo and loans because gross domestic product numbers were "man-made".

His remark was contained in a leaked diplomatic cable that was published by WikiLeaks in late 2010.

Electricity output slowed to a 1.5pc year-over-year growth rate in September, down from 2.7pc in August, according to the National Bureau of Statistics. Power production was down 11pc from August.

Exports

GDP expanded 2.2pc in the third quarter from the previous three months, the statistics bureau said.

On an annualised basis, that indicates that growth accelerated to 9.1pc in the last three months from 7.4pc in the second quarter, Standard Chartered's Mr Li said. He estimates the annualised pace was 7.7pc, up from 7.1pc.

"The speed of the turnaround implied by the official figures is implausible," Mark Williams and Qinwei Wang, economists with Capital Economics in London, wrote in a note on Thursday.

They said that their analysis of data, including freight, electricity output and construction, "suggests that conditions on the ground are weaker".

Mr Williams was previously Asia economist for the UK Treasury and Mr Wang formerly worked at the People's Bank of China.

Standard Chartered also questioned the acceleration of industrial production in September to a 9.2pc pace from a year earlier, from 8.9pc in August, a three-year low.

A production sub-index of September's official purchasing managers index "was flat compared to the average reading of the previous two months", Li Wei said.

Irish Independent

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