By Michael Lelyveld
China’s latest claim of steady economic expansion in the first half of the year offers a lesson on how little can be learned from official reports.
According to the National Bureau of Statistics (NBS), China’s gross domestic product (GDP) growth slipped only slightly to 6.8 percent with a 6.7-percent rise in the second quarter.
The numbers nearly matched the 6.9-percent GDP rate for all of last year.
Despite an “extremely complex environment both at home and abroad,” the economy continued to outperform the government’s target rate of “about 6.5 percent,” the NBS noted.
The decimal-sized dip in the most recent period marked the 12th consecutive quarter that growth had stayed within the range of 6.7-6.9 percent, the agency said.
But analysts saw little reason to celebrate such consistency.
“In the end, it isn’t clear whether the economic growth figure tells us much about the state of the Chinese economy,” The New York Times said. “In fact, research shows that China has been both overestimating and underestimating growth for years.”
Some experts charged the NBS with deliberately manufacturing the results.
“It thus redefined the word shameless,” said economist Derek Scissors in a blog posting for the American Enterprise Institute in Washington.
If the economy was that steady in the first half, the average Chinese investor might not know it, as concerns mounted over interest rate hikes and the threat of a trade war with the United States.
The yuan weakened by about 2 percent against the U.S. dollar during the span of the six-month period, but it has dropped nearly 8 percent in the past three months, the CNN Money news site reported last week.
China’s benchmark Shanghai Stock Index fell by 15 percent in the first half.
Best face on results
Official media have put the best face on the six-month results.
A Xinhua news agency commentary cited the strongest performers in the economy as providing balance for “some softening on the investment and industrial production front,” resulting in nearly equivalent GDP growth.
The service sector gained 7.6 percent in the first half, property investment increased 9.7 percent, and retail sales of consumer goods in June rose 9 percent.
Investment in high-tech manufacturing climbed 13.1 percent, while online retail growth topped 30 percent.
But double-digit growth in most sectors appeared to be a thing of the past. The NBS found few negatives to cloud its positive portrayal of the economy, although most indicators remained in single digits.
Industrial production was “generally stable,” rising 6.7 percent in the first half, just 0.1 percentage point slower than in the first quarter, it said. The “value added,” measuring the output of reporting industrial enterprises, was up by a nearly identical 6.6 percent last year.
Analysts noted the slow growth of fixed-asset investment (FAI).
The 6-percent pace of investment in buildings and other long-term assets in the first half was down 1.5 percentage points from the first quarter, marking “the lowest expansion in a decade,” according to the South China Morning Post.
FAI rose 7.2 percent in 2017, slowing from 8.1 percent in 2016, NBS said in previous reports.
China’s slump in investment this year appears to be largely self-inflicted as the government tries to clamp down on loose lending and financial risk.
Cuts in infrastructure spending and complaints about credit tightening are signs of a “deliberate slowdown” in the second quarter, the Times reported.
“The investment results are definitely part of a deliberate slowdown,” said Scissors by email. “But it’s not clear that lending has slowed with it. After all, you can still use loans even if not investing.”
Banking and financial regulators have sent conflicting signals about credit growth and debt reduction policies.
Rhetorically at least, the crackdown on credit has been aimed particularly at state-owned enterprises (SOEs), which have been favored over the years.
On July 12, the deputy secretary-general of the State-owned Assets Supervision and Administration Commission (SASAC), Peng Huagang, warned that individuals at SOEs would be held responsible for debt reduction and told “to avoid making loans for investment,” the official English-language China Daily reported.
The caution came as a reminder that SOEs have been accused not only of using credit to cover perpetual losses but also borrowing for speculative investments, raising financial risks.
A tough line
SASAC’s statement appeared to take a tough line on tightening.
But one day later, China’s central bank reported that new yuan-denominated loans jumped 13.3 percent in the first half to 9.03 trillion yuan (U.S. $1.35 trillion), according to the official Xinhua news agency.
By June 30, outstanding yuan loans had swelled 12.7 percent from a year earlier to a mammoth 129.15 trillion yuan (U.S. $19.3 trillion), the People’s Bank of China (PBOC) said. In June, new lending soared 60 percent from a month before.
Adding complication to confusion, the credit splurge appeared to clash with a PBOC report that the broad measure of money including deposits known as M2 had posted record-low growth of 8 percent in the first half.
The lending figures could be explained by efforts to curb off-book “shadow banking” as a source of credit, Scissors said in his blog. But then, where did the money go, if not into M2? The answer is unclear.
Another imponderable is the claim of high profits in the heavily-indebted industrial sector.
While industrial output growth inched up in the first half from low 2017 levels, rising from 6.6 to 6.7 percent, profits reportedly soared 21 percent last year, cooling only slightly to a 16.5-percent growth rate in the first five months of 2018.
The high rates could be a reflection of how low the industrial sector sank during the unacknowledged slump of 2015-2016, if the figures are to be believed. But output growth remains at historically low levels.
“No one in their right mind believes the industrial profit figures,” Scissors said.
Other claims in doubt
Other claims of sweeping change also suffer from credibility problems.
In charting China’s transition from an investment and export-led economy, the NBS reported that consumption accounted for 78.5 percent of first-half economic growth, up suddenly and sharply from 58.8 percent in 2017.
The basis for the estimate has not been apparent, but if true, the huge shift would be all the more remarkable in light of the near-seamless GDP results.
The first-half report may have more value as a policy statement, setting out the strength of China’s economy as it faces the challenges ahead.
Five-year planning to 2020 never contemplated the possibility of a trade war, and more recent forecasts have yet to reflect the economic costs.
The estimated 6.8-percent growth rate may provide enough of a cushion to meet the government’s GDP target this year in case the trade conflict continues to escalate.
That reassurance was the main message from the government’s top planning agency at a press conference one day after the NBS release.
“We have the confidence, strength and conditions, and we have sufficient competence to counter uncertainties in the world economy with certainties from China’s economic resilience and sustainability,” said National Development and Reform Commission (NDRC) spokesperson Yan Pengcheng, according to Xinhua.