All eyes on China’s shifting economy
China’s economy — the world’s second-largest after the United States’ — is expanding again, but not at as fast a pace, and probably not enough to bail out the global economy.
The New York Times
GUANGZHOU, China —
After a sharp economic slowdown through much of last year, China’s economy is growing again — but not at its previous double-digit pace, and with signs that inflation might become a problem again.
Shops were crowded this weekend, construction sites show renewed activity and factories are hiring as exports and domestic demand recover — trends all underlined by government data released over the past several days.
Further data to be released Friday and Saturday — including monthly, quarterly and annual figures for industrial production, fixed-asset investment, retail sales and overall economic output — are also expected to show that the world’s second-largest economy, behind after that of the United States is expanding once again.
Many shopkeepers are noticing an increase in retail sales. Among them was Liu Licai, a merchant in southern China who sells curtains and other household goods.
Although some industries, like auto manufacturing, still suffer from bloated inventories, retailers like Liu are finding their shelves too empty and are starting to place more orders with suppliers, keeping factories busy.
“Business has gone up by more than 10 percent in the last several months,” Liu said during a brief lull on an otherwise busy day.
Yet the pace of China’s expansion may not be fast enough to do much for the rest of the world. China’s imports are growing less than half as fast as its exports, making it hard for China to become the locomotive to pull the global economy out of its half-decade funk. And overall growth is not rebounding to previous levels.
Until last year, the government set as a goal 8 percent annual growth and the economy frequently delivered several percentage points more than that. Then last March, the government pared the goal to 7.5 percent, and actual growth seems likely to be little higher.
“The potential growth rate of the economy has come down,” Stephen Green, a China economist in the Hong Kong offices of Standard Chartered, said Sunday. “You don’t have to be in the double digits to get inflation.”
Prices rose faster in December, according to government data released Friday. Consumer prices rose 2.5 percent from the level of a year earlier, their fastest pace since May.
Economists inside and outside China say the true rate of inflation is as much as double the official rate because of problems in the way China calculates inflation.
Green and other Western economists warned that officially measured inflation at the consumer level could reach 5 percent by the fourth quarter and lead to an increase in interest rates by China’s central bank.
Producer prices are still declining, but at a slower pace. They were down 1.9 percent in December from a year earlier, the smallest drop since last May.
Early in an economic recovery, rising prices tend to be a sign the economy may not have much unused capacity that can be brought into production quickly. Yet Wen Senrong, the sales manager of the Flying Gift Bag store in Guangzhou, said she was already seeing costs rise, with increases for rent, materials and labor.
“Our lease was renewed recently and our rent went up by a double-digit percentage. I feel like I am working for the landlord,” she said.
Tang Chun, the owner of a factory that makes picture frames in Guangzhou, complained of rising costs for the supplies that she buys, including aluminum, acrylic and glass.
“Every possible cost is going up, including raw-material costs and my rent, but I can’t raise prices. It’s all coming out of my profit margins,” Tang said.
Part of the increase in inflation reflects rising prices for fruits and vegetables, as extremely cold weather in China over the past couple of weeks has damaged winter crops.
At the fruit stand where Zeng Xiandan, 25, was stacking tangerines Saturday, prices had just jumped 10 to 20 percent for a wide range of produce, including tangerines, which were up 15 percent. Zeng said the increases had drawn surprisingly little criticism.
“They understand it’s because of the cold weather. Customers have not complained,” he said.
But economists say the overall rising prices reflect broad shifts in the Chinese economy.
China is awash in cash, since the government has expanded the broadly measured money supply over the past five years much more rapidly than the United States, even though the Federal Reserve’s moves have attracted considerably more international attention.
China’s money supply is now larger than that of the United States, even though China’s economy is half as large as that of the United States.
Powering a recovery in China’s construction sector this winter is strong overall growth in credit, as businesses and households are starting to find it easier to borrow. Total credit jumped 28 percent in December from a year ago, led by more corporate bonds and more loans from semi-regulated trusts set up by banks.
Until the past several years, China seemed to be expanding its factories so fast and bringing workers into cities so quickly that it could sustain rapid growth just by fully using those factories and workers.
But an emerging labor shortage, particularly of young workers, has changed that picture. The country’s “one child” policy and more years spent in school have meant fewer young people entering the labor force.
The Chinese economy remains dominated by manufacturing, and factory overcapacity still exists in some sectors.
At the same time, the labor-intensive service sector is growing rapidly and has far less overcapacity that can be used without causing inflation.
As the Chinese eat out more frequently and as China’s fast-growing population of elderly increasingly ends up in nursing homes, expansion is taking place in the catering and health-care sectors. These sectors, along with education, have had trouble filling numerous, but often low-paying, positions.
Rebounding exports and construction have also increased demand for low-wage workers.
Exports leapt 14.1 percent in December from a year earlier, nearly three times as fast as expected, and were led by surging shipments to the United States, data released Thursday showed.
Imports rose 6 percent in December, thanks partly to an 11 percent jump in iron ore imports as steel production rebounded.