Has China already crashed?

published 26 July 2013

Is China's economy already having a hard landing? Chinese statistics are widely deemed unreliable, and some long-time China watchers have suggested that it could be in bigger trouble than we thought, notes Ambrose Evans-Pritchard in The Daily Telegraph.

Chinese economists have constructed an index based on electricity consumption figures, rail freight movements and credit growth, because a Wikileaks cable quotes Premier Li Keqiang saying he looked at those three factors to assess how the economy was really doing. This index suggests that annual growth has slumped to under 2%. That's below the trough seen at the height of the global crisis in 2009. The official figure is currently 7.5%.

Analysts have also noted that China's consumer price index, now around 2%, relies on an annually fixed basket of prices, which does not track consumer preferences very effectively. Another way of looking at inflation is to use the implied GDP deflator, which is the difference between published nominal and real GDP growth figures. This shows annual inflation of just 0.5%, as Albert Edwards of Socit Gnrale points out. Official producer price inflation figures are already negative. "China is on the verge of outright deflation." And hence in danger, says Evans-Pritchard, of becoming the next Japan.