I see many biased stories on China, so it’s nice to read something sensible. Here’s Alex Frew McMillan:
Write off China at your peril.
That’s the message coming out of Tuesday’s economic data, which were considerably stronger than expected. The data show that the second half of 2016 will produce growth similar to that of the first six months of the year.
Just as the sun is shining on China’s east coast today, the numbers dispel the gloom cast over China’s economy last year, when the most-pessimistic of pundits predicted a crash landing.
August industrial output rose 6.3% year on year, beating a 6.2% estimate and up from 6.0% the previous month. Retail sales were the real shock, rising to 10.6% from 10.2% the previous month, a number economists had anticipated would be repeated. Infrastructure investment was also strong, after a sharp drop in July.
People’s reactions to such numbers are all over the place. I just received a report in response to the figures from SocGen: “Concerns over bubbles, not growth.” Some people are just never happy!
Longer term, growth is slowing—which is appropriate:
Yes, China is growing at its slowest annual pace since 1990. But a $9 trillion economy is not going to continue producing double-digit gains, as it did from 2003 through 2010. The economy missed an 8% growth rate only twice between 1990 and 2012, but may never hit such a pace again.
China has grown up. Or it is at least in adolescence. The sunniest outcome of this set of figures is that it likely gives Beijing the boost necessary to pick up the pace in overhauling its overproducing, underperforming, bloated state-owned enterprises.
China’s economy grew 6.9% last year, and is on track to hit around 6.5% to 7% in 2016. That’s the figure Beijing “predicted” in March — and China’s leaders are rarely (let’s say never!) wrong when they can turn the stimulus tap at will. Failing that, they’ll “massage” the numbers anyway, as I explained in April.
CLSA says in response to the latest numbers that China is on pace for 6.7% this year. “Overall, China’s August activity data were reassuring for investors,” the brokerage said, one that I think has some of the most sensible research on Asia.
And a sober reminder that there is still a lot at stake:
But it is far from all roses in China’s garden. The vast divergence between China’s humming, and wealthy, east coast and the rest of the country was only reinforced by the recent tragic tale of a woman in rural northwestern China.
Yang Gailan, 28, had been farming wheat, peas and potatoes in Agu Shan Village in Gansu province, as outlined in this story from The New York Times. She supported her four children, all under 7, on the $500 per year that her husband sent home from his migrant job in a nearby town.
Since welfare benefits are only granted in China to people living on $350 per year, local officials removed her payments. One day, the young mother told relatives she was taking her children to go tend the family’s sheep. Then she poisoned them with pesticide, attacked them with an axe, killed them, and killed herself by drinking the pesticide. This month, her husband came back from work and killed himself with poison.
The Chuck Schumers and Donald Trumps of the world favor policies that would lead to more of these sad stories (which thank God are far less frequent than a few decades ago–due to economic growth.)
The story has gained prominence in China, and has rammed home the vast gap in wealth between China’s haves — the country’s GDP per capita is $6,471 while the United Nations defines poverty as living on less than $1 per day — and rural have-nots. Many families are ripped apart by economic forces that drive parents into migrant jobs where they lack the hukou residence permit that grants them rights as a local citizen. . . .
That’s in strong contrast to the young bucks and hinds foraging for tech jobs amid the gleaming office towers of Shenzhen, just across the border from me here in Hong Kong. It’s the city with the highest per-capita income in China. Although it is a former fishing village with one of China’s last stretches of mangroves, and it is Cantonese given its location in Guangdong province, you will struggle to find someone who understands the dialect. Mandarin-speaking, motivated youngsters head there for top-paying jobs from all around China. . . .
The estimate is that China needs to sustain growth above 5% to create enough jobs and wealth to avoid unrest and demonstrations. And if China can continue along that line, making the transition from an agrarian straight into a post-tech world, ripping through its industrial revolution at record pace, I will be happy.
So will 1.4 billion people.
All over the world, politics is becoming increasingly stupid. How much longer before these xenophobic trends impact rapid growth in Asia? Let’s hope that we can hold back the barbarians for a few more electoral cycles, until the poor in China don’t feel a need to kill the children that they cannot support.
PS. I have new posts at Econlog on Fed officials struggling with the concept of “struggle”, and another on our latest failed fiscal experiment.