China’s economy: glass half-full, glass half-empty, or time to get your glasses checked?

August 9, 2013
August 9, 2013

China’s unexpectedly strong July trade data this week sparked a round of contradictory explanations and conflicting stock market moves, reflecting a deep divide about what’s next for the world’s second-biggest economy. New data released on Friday—which showed inflation was steady, industrial production climbed ahead of expectations, and retail sales grew more slowly than expected—did little to clarify matters.

“Confidence in the mainland’s economy has stabilized,” Zhao Xijun, a finance professor at Renmin University, told the South China Morning Post, a sentiment that was reflected in stock markets from Brazil to the United States, which Thursday jumped on the news that imports grew by 10.9% and exports by 5.1% in July from the year before, significantly beating expectations.

Looking at the exact same trade data, others continued to beat funeral drums. Nothing but gloom lurks ahead for China, Eric Lascelles, chief economist at RBC Global Asset Management, told the Wall Street Journal, predicting that China’s GDP growth would slide to 4.5% a year in the next decade. China’s economic spurt has largely been driven by exports and borrowing, but “both of those growth engines are tapped out,” he said.

Some decided not to make a call at all. “We would need to see a consistent rise in trend for another two to three months to be confident of a sustained uptrend,” research firm CLSA said in a report on the trade figures. In Asia, stock markets seemed to reflect this lack of enthusiasm on Friday, trading at or close to Thursday levels.

“While the worst seems to be over, the upturn will be relatively flat,” said economist Alistair Chan of Moody’s Analytics.

The lack of transparent, reliable data from Beijing has global number-crunchers pulling their hair. Some baldly called the July trade statistics made up. “One important question in investors’ minds is whether we can trust the quality of these trade statistics,” Bank of America Merrill Lynch’s Ting Lu said (Business Insider). It’s a long-standing concern. China’s export data is particularly suspect, because of the common practice of using fake export invoices to get tax refunds.

Other analysts are ferreting out obscure stats to serve as Chinese economic indicators, like salt consumption or furniture sales. As China transforms to more of a consumer economy, this uncertainty is only going to get worse, Alvin Pontoh, Asia-Pacific strategist at TD Securities in Singapore told Reuters:

Some figures, any figures, on expenditures would be really welcome as the markets are going to be watching that more and more closely as China heads for a consumer economy.  Everybody grapples with the data. The only comfort is that we’re all in the same boat.

Back in April, when China reported an unexpected, nearly $1 billion trade deficit, analysts and economists had a similar range of divided reactions. Several months later, the only thing thing that’s settled is how far apart their predictions remain.

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