11:22 GMT08 August 2020
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    Key economic indicators show that China’s long-winded economic growth may finally be showing signs of running out of breath.

    Factory output, consumer spending, and capital investment disappointed analysts’ expectations for July following a strong start to the first six months of the year, according to a Monday report in the South China Morning Post.

    It’s worth noting that July factory production growth rates (6.4 percent versus 7.6 percent over the first half of the year,) and the fixed-asset investment rate (0.3 percent contraction in July versus the first two quarters) were still positive.

    "The trend of steady investment growth will not change," National Bureau of Statistics spokesman Mao Shengyong told Xinhua on Monday. Furthermore, fixed-asset investment was still 0.2 percent growth higher over the first seven months of 2017 than over the first same time period in 2016.

    Investment in traditional manufacturing slowed, while the technology, equipment manufacturing, and environmental sectors experienced significant growth in capital investment, the spokesman said.

    Nevertheless, analysts believe China is not headed for another round of miraculous expansion, and could even have reached its potential in terms how fast it has grown in the past. "The peak of China’s economic momentum is behind us," private-sector economist Deng Haiquing told the Post.

    Mounting debt

    The level of non-performing loans — in which a borrower is neither making interest payments nor paying down the loan principal — was higher after Q1 2017 than at the end of Q3 in 2008. Non-performing loans (NPLs) are reasonably expected to enter default.

    There were roughly ¥ 1.264 trillion of NPLs before the 2008 financial collapse that required significant cleaning up by state-controlled banks. The Chinese economy has accumulated approximately ¥ 1.634 trillion of bad loans by Q1 2017, according to National Bureau of Statistics of China and Bank for International Settlements data.

    Some analysts argued the level of bad debt could actually be up to 14 times higher “because lenders use various methods to conceal the true figure” in reports to federal agencies, according to a recent Reuters analysis.

    Next step

    "Deleveraging," or reducing debt levels, "and lowering risk in the financial system are now clearly among the top medium-term objectives of [Chinese President Xi Jinping’s] administration," Yao Wei, chief economist at French banking multinational Societe Generale, told the South China Morning Post. Yao anticipates the Chinese economy is not heading for a hard landing, or sharp, debt-induced, economic contraction.

    "China’s economic growth will cool in the second half of this year on less accommodative monetary policy and slower growth in real estate" activity, opined Louis Kuijs of Oxford Economics Asian economics desk, in comments to SCMP.

    “The Chinese economy has experienced a slowdown, but the worst is now over and the Belt and Road Initiative will help prevent it from being worse,” US Economist Pippa Malmgren told Xinhua on Sunday.

    Trump factor

    US President Donald Trump campaigned on renegotiating trade deals with China, working toward fairer deals, and lifting US-China trade deficits closer to parity. While Trump has scaled back on this rhetorical front since moving to recruit Beijing’s help with respect to North Korea, on Monday the president signed a memo directing the US Trade Representative Robert Lighthizer to examine China’s intellectual policies "with regard to the forced transfers of American technology and the theft of American intellectual property."


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