China’s Growth Rises from Surge to Boom
The latest numbers on China’s economy are dazzling – some say too dazzling. China's industrial output growth accelerated to 19.2 percent in November year-over-year. That follows a 16.1-percent increase in October.
Production of heavy industries was up a remarkable 22.2 percent in November, and for the light industries the increase was a more conservative 12.6 percent.
The National Bureau of Statistics (NBS) says overall industrial output increased 10.3 percent year-over-year during first 11 months this year, and this is perhaps a more reliable figure because the 19 percent jump is a contrast with the period a year ago when the U.S. economic bubble burst.
Importantly for western and Asian economies, China is becoming a driver of growth. China's imports in November increased an impressive 26.7% from a year ago to $94.56 billion. This marks an important turning point, reversing October's 6.4% import drop and greatly exceeding market expectations. The November news was the first import rise in 13 months, showing strengthening domestic demand.
In simple volume terms (rather than dollar-demoninated), imports have been rising every month since June, driven by strong purchases of commodities such as oil and iron ore. But this volume increase had been masked by recession-caused currency deflation.
Many readers of my China Stock Digest will recall the period of double-digit growth before the U.S. mortgage implosion threw worldwide economic expansion into reverse. Before the bubble burst, China watchers had been worrying about “overheating” in the Chinese economy. China never stopped growing during the global recession, but the nation’s expansion figures are so high that pundits are once again worrying about China overheating while the world struggles to escape the U.S.-led slump.
Indeed, real inflation has returned to China for the first time this year. The consumer price index rose 0.6 percent in November from a year earlier, reversing October's 0.5 percent drop. This was the first increase since January (and January’s rise was a brief blip caused by a freak snowstorm affecting food supplies).
A bigger measure of China’s monetary status is money supply, which has been bolstered by a flood of state-mandated bank lending as well as a $586 billion stimulus program. China's broadest measure of money supply rose 29.74 percent at the end of November from a year earlier, compared with a similar rise at the end of October. Chinese banks extended 294.8 billion yuan worth of new loans in November, up from 253 billion yuan in October.
Along with money supply, there is also concern about a real estate bubble. Fixed-asset investment in China's urban areas rose 32 percent in the January to November period from a year earlier. In an attempt to manage the situation, The State Council (China’s cabinet) said this week that the government will re-impose a sales tax on homes sold within five years. It also extended subsidies for consumer purchases in impoverished rural areas, while scaling back tax breaks for car buyers. Luxury buyers will get no breaks.
Beijing is pulling all the levers to stimulate domestic consumption as much as possible without trying to stymie bubbles on items like purchases of second homes for speculation purposes.
China’s exports are still down. Exports continued to drop in November by 1.2 percent from a year earlier, but the rate of decline greatly eased from the 10.7-percent fall in October.
But the push to boost domestic consumption is working.
Retail sales in November rose 15.8% from a year earlier. This continuing trend is key to weaning China from reliance on exports and its shrinking balance of trade surplus.
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