You had CLSA’s Andy Rothman’s preview yesterday (CHINA WATCH: CHINA’S Q1 PREVIEW). Q1 is now behind us. For a good assessment of what is ahead, read Andy’s preview which included an excellent wrap-up of the state of the Chinese economy. For continuous monitoring of China’s economy, click on the CHINA WATCH tab.
China’s economy grew 6.1 per cent in the first quarter, the lowest year-on-year reading since quarterly GDP data was first published in 1992 as Beijing struggled to prop up growth that has deteriorated in the face of the global crisis.
The increase was down from 6.8 per cent in the fourth quarter and 9 per cent for the whole of 2008.
The rapid cooling in Chinese growth has been led by a collapse in exports and private sector investment but aggressive government stimulus measures to boost growth through infrastructure spending kept the economy in positive territory.
The 6.1 per cent GDP growth rate was far lower than the 10.6 per cent recorded in the first quarter of 2008 and less than half the 13 per cent China recorded for the whole of 2007 but the government appears relieved that growth has not deteriorated further.
The figure was “indeed quite an achievement” against the background of the worsening global crisis and recession in many of the developed economies that China relies on to buy its exports, Li Xiaochao, spokesman for the National Bureau of Statistics.
Premier Wen Jiabao was pleased the growth rate was not lower and expressed optimism that the Chinese economy is showing some signs of recovery, according to someone who met him earlier this week.
Other data released on Thursday showed a mixed picture with some signs of recovery as a result of government policy and spending support.
Fixed asset investment, which accounted for more than 42 per cent of Chinese GDP in 2008, showed a marked acceleration in March, rising 28.8 per cent in the first quarter, 4.2 percentage points higher than the growth in the same period last year.
The bulk of the increase came from a flood of bank credit to government-supported infrastructure projects, which offset a decrease in investment in the real estate and manufacturing sectors.
The government’s railway investment more than tripled from a year ago while investment in power projects, non-ferrous metals and mining and the coal sector registered growth of 20.6 per cent, 84.3 per cent and 59.6 per cent respectively in the first two months, according to JPMorgan.
Industrial production accelerated to grow 8.3 per cent in March and 5.1 per cent in the first quarter from a year earlier, down from 16.4 per cent growth in the first quarter of 2008, according to Mr Li.
But aggregate profits at large Chinese enterprises fell 37.3 per cent in the first two months from a year earlier and industrial use of electricity, which is usually closely correlated industrial production actually fell 8.38 per cent in the first quarter from a year earlier, according to the China Electricity Council.
Mr Li said he had no explanation for the discrepancy between falling power consumption and rising industrial production but insisted that both figures were accurate and the issue required “further study”.
Consumer prices remained in deflationary territory in March, with the benchmark consumer price index dropping 1.2 per cent from a year earlier and falling 0.3 per cent from February.
From FT Lex column:
(…)
Some hopefulness is justified. Beijing’s willingness and ability to spend its way out of the slowdown are shown clearly by March’s 30 per cent increase, year-on-year, in urban fixed asset investment. Banks, under government orders, are lending furiously. M2 money supply is growing at a record clip. Lending is up 30 per cent. And fiscal spending has a better track record in China than, say, Japan. The World Bank reckons that the country’s $100bn fiscal stimulus of 1998-2002, worth 7.8 per cent of 1998 GDP, prompted four times as much in other government-influenced investment.
That investment, however, was largely targeted at infrastructure bottlenecks. Discipline looks more ragged this time around. Spending on housing, for example, does not tally with continued weakness in the real estate sector; nor with recent predictions by a government think tank that prices will halve over the next two years. Rapidly rising bank lending inevitably creates more dud loans. With new loans to date running at almost the same level as for the whole of 2008, it could also set the stage for a sudden pull-back. Beijing, whose early tightening policies helped precipitate the country’s economic slowdown, has a penchant for putting its foot on and off the pedal. The outside world’s hope that Chinese demand would spill over, helping to lift the global economy, has failed to materialise. Komatsu, one of the biggest heavy machinery makers, saw Chinese unit sales fall 28 per cent year-on-year in March. Any “V” shaped recovery will come with firmly Chinese characteristics.
FT
Andy Rothman’s comments on Q1 GDP:
(…) As we expect zero contribution to full year GDP growth from net exports, our focus is on investment and consumption, which should each account for about half of growth.
Fixed asset investment continued strong, up 30.3% in March, rising from 27% in Jan/Feb. 1Q FAI rose 28.8%, up by 4.2ppts on 1Q08, fuelled by government spending and massive increases in credit and liquidity. FAI by industry rose 27% in 1Q and by construction/services (tertiary) by 29%.
Retail sales rose by 15.9% in real terms, 15% nominal, in 1Q. In real terms, this is 3.6ppts higher than 1Q08, and keep in mind that real retail sales have only been above 15% since July 2008. March nominal retail sales rose 14.7%, down just a bit from 15.2% in Jan/Feb. Reflecting strong home sales, 1Q furniture sales were up 24%, construction and decoration materials 20%, and vehicles 11%.
Per capita urban disposable income resumed double-digit growth, up 11.2% in real terms (vs 8.4% in 08), 10.2% nominal. Rural cash income rose 8.6% in both nominal and real terms (vs 8% in 08). Spending power was helped by a 0.6% fall in CPI in 1Q, down 1.2% YoY and 0.3% MoM in March.
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