China's economy heads for sharp slowdown

published 12 March 2015

China this week delivered some of its weakest data since the global financial crisis. Industrial production in January and February grew by an annual 6.8%, down from 7.9% in December and the poorest performance since December 2008. Fixed asset investment growth came in at 13.9% year-on-year, the slowest since 2000.

Retail sales also disappointed. Property transaction volumes slipped by almost 17% and unsold apartment inventory rose to another record. Consumer price inflation ticked up to 1.4% in February, but producer prices fell by 4.8% in February alone, a six-year low.

What the commentators said

Given that, it's "troubling" that the government's latest efforts to bolster the property market by reversing restrictions imposed when it was overheated have failed to gain traction. Subdued buying and building activity is becoming a brake on growth and on employment. Fiscal tightening by local governments isn't helping either.

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Juicing growth implies loosening lending restrictions enough to blow up the debt bubble again. But this may be easier said than done. China's total debt load is already at 282% of GDP, higher than the figure for Germany or America, according to consultants McKinsey.

The economy is now "saturated" and getting less traction out of debt, said Ambrose Evans-Pritchard in The Daily Telegraph. Each extra yuan of credit produced 0.8 of a yuan of growth in 2008. Now it can only generate 0.2. In any case, with inflation low and falling, the real value of corporate and household debt will rise, which portends a further hit to spending and investment.

The state has already downgraded China's GDP growth target for this year to "around 7%" a figure it may have to revisit in the not-too-distant- future.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.