China postpones its hard landing

Fears of a downturn in the Chinese economy have been put off - at least for now.

Signs of mounting strength in China's economy cheered global markets this week. Exports rose by 7.2% year-on-year in August, helped by stronger growth abroad. August's trade surplus was the highest for that month since 2008. The annual rate of consumer price inflation edged down by 0.1% to 2.6%. Producer price deflation eased to -1.6% on an annual basis.

Industrial production accelerated by 10.4% year-on-year, the fastest annual pace since March 2012. Retail sales growth ticked up to 13.4%. Forecasters now reckon the government will have little trouble meeting its 7.5% GDP growth target for this year.

What the commentators said

The main worry about China, continued Weisenthal, is that "tons of investment-led growth" has led to widespread overcapacity, lots of unused infrastructure, and a dire need to let demand catch up with supply; hence all the talk about shifting growth towards consumption rather than investment. But the latest data suggest "we're back to investment-led growth, and adding more infrastructure where it is unneeded".

A significant acceleration in infrastructure investment has been "the major push" of late, as Socit Gnrale pointed out, while Capital Economics added that the most rapid gains in output last month came from state-owned firms. Overall credit in the economy is still growing at 20% year-on-year, said the consultancy. So "the omens for the short term are good". But the economy's structural problems are getting worse as this rebound has "strong echoes of 2009. The economy is once again being propelled, unsustainably, by state-led investment."

Recommended

China’s bulls stampede as recovery gathers strength
China stockmarkets

China’s bulls stampede as recovery gathers strength

China's benchmark CSI 300 stockmarket index has gained 12% so far this year and is up by 32% since 23 March as the country's industrial and consumer r…
21 Sep 2020
China adds shine to base metals
Industrial metals

China adds shine to base metals

Metals prices have rallied hard after China's government unveiling plans for new infrastructure building, including railways, power lines and electric…
28 Aug 2020
Equity investors ignore US-China split at their peril
Stockmarkets

Equity investors ignore US-China split at their peril

Washington and Beijing’s troubled relationship has taken a turn for the worse recently, but markets have become strangely blasé about the situation.
21 Aug 2020
Guru watch: buy gold ahead of China's big currency move
Gold

Guru watch: buy gold ahead of China's big currency move

China has steadily been building “a renminbi-based international payments system", says Charles Gave, founding partner and chairman of Gavekal.
27 Jul 2020

Most Popular

Oil producers are back at their Covid-19 lows – is it time to buy?
Oil

Oil producers are back at their Covid-19 lows – is it time to buy?

With demand for oil hammered by Covid-19 and talk of “peak oil demand”, there are lots of good reasons to be bearish on oil producers. So, asks John S…
22 Sep 2020
IAG's share price is ready for take-off - here's how to play it
Trading

IAG's share price is ready for take-off - here's how to play it

The owner of British Airways has had a turbulent year, but is now worth a punt. Matthew Partridge explains the best way to play it.
8 Sep 2020
Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020