Yet based on those other data points, the Chinese economy does appear to be steaming along, even as Beijing begins trying to rein in rampant lending. Industrial production increased 7.6 percent in March, the best performance since the end of 2014. Investment and retail sales were also unexpectedly strong.
The trick will be to continue that growth while also trying to curb China’s dependence on debt, which has fueled much of the country’s economic activity in recent years.
Uncommonly Steady Growth
Official data shows that China’s economy has grown between 6.7 percent and 7.2 percent for the last 11 quarters, a stunningly long period of stability by international standards. By comparison, figures for growth in the United States can move by one or two full percentage points from quarter to quarter.
Now, China is not exactly like the rest of the world. The government directly controls its big banks, huge state-owned companies and other tools it can use to hit its growth targets. The government spends very heavily on new roads and rail lines, and a surge in government spending in March helped push the economy along. But the government has much less control over retail spending and private investment, which should make the data more volatile.
Chinese officials themselves have said the country’s data can be unreliable, though outright fraud has not been documented at the national level. Many economists believe China uses a combination of policy and statistical sleight-of-hand to achieve steady results. By this theory, Chinese policy makers make moves to get what they want, like expanding infrastructure spending and mortgage lending during slowdowns, but they also engage in data smoothing by understating growth in good years and overstating growth in bad years.
Despite the dubious predictability, other figures do suggest that China’s economy is expanding at a vigorous pace.
Economists had expected industrial production to maintain in March the same 6.3 percent growth that it showed in January and February and were taken by surprise by Monday’s announcement that production was up 7.6 percent. That means China’s factories are staying busy. Exports are one reason, as the world appears to be showing more appetite for the types of things that China churns out and sends abroad. The Treasury Department’s decision in Washington on Friday not to name China as a currency manipulator, despite a campaign promise by President Trump to do so, removes another possible threat to China’s exports.
Real estate is a big factor in China’s growth. Last year, China’s central bank urged commercial banks to step up mortgage lending to support the housing market, which had been weakening in some cities. The mortgages have produced frenzied buying over the past year. That has helped construction but has also raised worries that housing prices, already unusually high by international standards relative to local incomes, might have become an unsustainable bubble.
All this comes amid signs that China is trying to curb the lending that has driven so much of its growth in recent years. That lending kept the economy going but resulted in heavy debt that economists worry could hinder the country’s growth for years to come. So far, the government’s modest pressure on banks to limit lending, notably through slight increases in short-term interest rates, seems to have had only a limited impact on overall bank lending, however, and very little effect on mortgage lending.
Still Building Homes
Chinese households put as much as nine-tenths of their savings into real estate, more than households in many other countries. That has continued to produce strong demand for new apartments, which in turn has led to a brisk pace of construction.
Credit data released on Friday showed that bank loans to households, a category in which mortgage lending plays a leading role, leapt 24.6 percent in March compared to the same month a year ago, even as other categories of lending began slowing somewhat. The industrial production data suggests that China’s steel mills and other industries are still benefiting from the mortgage boom and the construction that it has financed.
The National Bureau of Statistics said on Monday that overall investment in fixed assets, including factories as well as office towers and apartment buildings, climbed 8.8 percent for the first quarter, little changed from a pace of 8.9 percent for the first two months of the year despite the central bank’s modest moves to limit credit. Private investment quickened in March, offsetting a slight slowing in what remains very heavy investment by the government, particularly in rail lines and other infrastructure.
Earning and Spending
Chinese blue-collar wages have surged as much as eightfold in the past dozen years. That has considerably eroded the country’s once-daunting advantage in labor costs compared with the West, but has also produced a broad-based surge in prosperity that has fostered a rise in consumer spending.
The government has wanted for many years to shift the economy away from its dependence on investment and toward a greater reliance on consumption, but that process has been slow. The National Bureau of Statistics said on Monday that retail sales were up 10.9 percent in March from a year earlier, considerably stronger than economists expectations of a pace below 10 percent. .
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