This report comes from Markit which does an excellent job of summarizing what is happening to China’s economy. They are slowing because of two things: the failure and fallout of stimulus (monetary and fiscal), and weakening export markets. They are exhibiting a classic response to the laws of economics as economies built on monetary stimulus eventually find that fiat money cannot ever drive growth. Those of you may recall my early warnings that their economy would sink. While they are seen as having a market-based economy a large part of it is still subject to top-down commands. They cannot bail us out, as many had hoped, since they have an export-based economy . We will bail them out.
- Industrial production growth slows to 9.2%
- Consumer price inflation slows to 1.8% and industrial prices fall on a year ago
- Retail sales rise 13.1% (13.7% in June)
- Fixed asset investment growth slows to 20.3%
China’s economy showed further signs of slowing at the start of the third quarter, according to official data showing industrial production growing at the slowest rate since early-2009. Correspondingly, price pressures moderated, with consumer price inflation easing to the weakest for two-and-a-half years.
Other data meanwhile provided further evidence of a cooling domestic economy, with retail sales rising at the weakest rate since early-2006 and fixed asset investment running at half the pace seen a year ago.
Production slows further due to falling orders and rising stock levels
Industrial production grew at an annual rate of 9.2% in July, down from 9.5% in July. The trend in production is currently the weakest since early-2009, though at the height of the financial crisis the growth rate fell to as low as 5.4% (in November 2008).
The steady slowing in the rate of growth that has been evident since mid2011 has been signposted in advance by the business surveys. The Markit- produced HSBC Manufacturing PMI indicates that growth is being held back by weak demand. New orders have now fallen continually since last November, and weaker than expected sales have caused warehouses to fill with stocks of unsold goods. Stocks rose for the third month running in July, causing the PMI survey’s ratio of new orders to inventories to remain at a very low level by historical standards.
Price Pressures Ease
Consumer prices rose just 1.8% on a year ago in July, down from 2.2% in June to register the slowest rate of inflation since January 2010. The rate had peaked at 6.5% in July of last year. Producer prices meanwhile fell 2.9% on a year ago, recording the largest year-on- year fall since October 2009.
A further fall in producer prices is signalled by the PMI Input Prices Index, which tends to move ahead of the official measure of factory prices. However, the PMI index also suggests that the rate of decline showed signs of having bottomed out, in part due to rising food commodity prices.
While rising food prices are a concern, the underlying (core) trend in headline consumer price pressures is likely to remain subdued. This reflects the recent weakening of demand, which has led to a buyers’ market for many goods. A key indicator of the shift of suppliers’ pricing power is the PMI Suppliers’ Delivery Times Index, which started to signal a shift from a sellers’ to a buyers’ market after peaking in early-2011 and remained at a level consistent with supply outstripping demand in July, encouraging suppliers to offer discounts (albeit to a lesser extent than in June).
Retail sales growth weakest for six-and-a- half years
In a further sign of weakening domestic demand, retail sales grew at an annual rate of 13.1% in July, down from 13.7% in June. If growth rates in volatile months – such as New Year holidays – are excluded, sales are now growing at the weakest rate since the start of 2006.
Investment growth cools further
The National Bureau of Statistics also released data on fixed asset investment, which showed a 20.3% increase on a year ago in July (in current prices). The latest growth rate is roughly half of the rate seen this time last year and down from 23.5% in June.