Are Chinese Central Bank Actions Contradicting Economic Data?

In our latest article, “China Growth – Miracle or Mirage” published October 20, 2015, we questioned whether China’s perfectly forecasted and uniquely steady economic growth is a mirage. On Friday morning, following Chinese Premiere Li’s comment that growth was still in a “reasonable range”, the Chinese central bank (PBoC) proceeded to cut interest rates as well as the required deposit reserve ratio for major banks.

The language of the Premier and the actions of the PBoC are contradictory. Their actions in conjunction with their words offer even more evidence to believe reported growth is a mirage and the correct answer to the question above and in our previous article.

This postscript offers a series of facts and recent economic data to lend further context toward determining whether China’s growth is, in fact, a miracle or a mirage. Before viewing the statistics below take a moment to consider the following: If China’s economy is in fact humming along at a “reasonable” 6.9% pace, then what is the logic and motivation behind aggressively easier monetary policy?

Put another way, what don’t we know about the Chinese economy?  Here’s a list of Chinese central bank actions.

Chinese Central Bank Actions vs Economic Data

  •  1yr Benchmark Lending Rate: Since November 2014 China has cut their 1 year interest rate 6 times. Over this period the interest rate has been lowered from 5.60% to 4.35%
  •  Required Deposit Reserve Ratio for Major Banks (determines amount of leverage banks can take and therefore the amount of loans they can make): Since February 2015 China has lowered it 4 times from 19.50% to 17.50%.
  •  Renminbi: Since August China devalued their currency 2.8% Economic Statistics
  •  China export trade: ‐8.8% year to date
  •  China import trade: ‐17.6% year to date
  •  China imports from Australia: ‐27.3% year over year
  •  Industrial output crude steel: ‐3% year to date
  •  Cement output: ‐3.2% year over year
  •  Industrial output electricity: ‐3.1% year over year
  •  China Manufacturing Purchasing Managers Index: 49.8 (below 50 is contractionary)
  •  China Services Purchasing Managers Index: 50.5 (below 50 is contractionary)
  •  Railway freight volume: ‐17.34% year over year
  •  Electricity total energy consumption: ‐.20% year over year
  •  Consumer price index (CPI): +1.6% year over year
  •  Producer price index (PPI): ‐5.9% year over year
  •  China hot rolled steel price index: ‐35.5% year to date
  •  Fixed asset investment: +10.3% (averaged +23% 2009‐2014)
  •  Retail sales: +10.9% the slowest growth in 11 years
  •  Shanghai Stock Exchange Composite Index: ‐30% since June

 

Are these actions and economic statistics consistent with a country thought to be growing at 6.90% annually?

 

Twitter:  @michaellebowitz

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

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