China Projects 6.8% GDP for rest of 2013
Sept 10 2013 delayed FreeVenue public release of
June 10th MemberVenue guidance ~ Today's
Trendlines Recession Indicator
monthly update reveals the momentum of thirteen months of
incrementally rising economic growth appears to have crested in
April and may have entered an era of secular decline as the new
Gov't implements planned reforms amid a maturing economy.
China's official data
released in April infers March (1Q13) Real GDP was 6.4% (Q/Q), down from an 8.1% pace in
December (Q4). Conversely, TRI's
monthly gauge of economic activity found Q1 to be a
(Q/Q), up from 6.9 in the previous quarter. TRI's monthly
gauge of early proxy data June (Q2) to be 7.1%, down from 7.2% in
May. The model's
measure of animal-spirits-plus indicates a 6.8% pace for both Q3 &
Albeit this year's
7.0% annual growth rate is up from 6.7% in 2012, China-specific
headwinds should see GDP slip back to 6.7% in 2014 & incrementally recede
to 6.4% by 2020. There is no evidence of a soft-landing within
the 2020 visible horizon.
June 10 2013
Recession Alert: After recovering from
a 3.4% trough during the global Great Recession, China's
Real GDP pace has settled into a narrow 7.5%-6.0% channel. The
Trendlines Recession Indicator
projects China-specific headwinds will damp the annual growth
rate from this year's 7.0% to a respectable 6.4% by
decade end. In an 2.1% Inflation environment and a
5.9% prime rate in its Monetary Policy tool box, there's
no evidence of a soft-landing within the 2020 visible
will change, no
doubt, as Inflation and Inventory factors come into play. Then
layered over those natural business cycles will be external issues and the mitigation efforts via
Monetary Policy & Fiscal Policy as determined by the People's Bank of China
& the Central Peoples Gov't.
China has two strategic advantages
going forward. Sitting on $3.2 trillion
of foreign exchange reserves plus its gold, it has proved means to
invest in public infrastructure when fiscal policy stimulus is merited. It also possesses the conditions for effecting
conventional monetary policy: the combination of low (2.1%)
Inflation and a high Prime Lending Rate (5.85%).
Very few G-20
nations have the ability today to lower further their prime rate to
stimulate the private sector w/o fear of spawning
excessive inflation in doing so. Worse, many countries need to
borrow funds today just to keep the phone and lights on, thus
lacking the opportunity to invest in strategic infrastructure projects.
In the aftermath of the Games and the Great Recession, a shared
steady hand on the tiller by the PBoC and the CPG has visibly
moderated the amplitude of annual cycles by every measure. The
Gov't appears to have finally eliminated most of the errors in its GDP data
collection associated with apparent double-counting and seasonal
adjustments. Cyclical crests were especially high
in the prelude to the 2008 Beijing Olympics with reported Real GDP growth
rate setting a mark of 15.7% Q/Q in 2007Q2 (compare to USA
16.7% high 1978Q2).
While most of the G-20 faced critical contractions in 2008Q4, China
sported a surprising 3.4% TRI pace. Seeing time was of the essence,
China's recovery is credited to a massive $586 billion fiscal
stimulus announced already in Nov/2008 (3 months prior to USA). Being ahead of the
curve, the action hoisted GDP to a lofty
11.4% by Aug/2009 ... higher and faster than all other G-20
Potential Headwinds Factors
which could eventually contribute to short/medium/long term weakness
shown in the TRI
outlook incl: (a) a rising exchange rate for the Yuan; (b) rising
inflation; & (c) aging society demographics
~ An ever-rising
Yuan will indeed make some Chinese exports more expensive, but in some
sectors this will be offset by decreased costs for import inputs
and commodity acquisition to maintain competitive advantage.
~ China's rate
of urbanization is slowing and albeit not likely to level out at 67%
'til 2030, a slowing of the influx of rural workers will certainly
augment wage pressures. Industrial wages have tripled in the
past twelve years. This factor is already creating
opportunities for periphery nations (e.g. Vietnam & Bangladesh).
Those external pressures have resulted in manufacturing wage
inflation declining to only 5% this year.
working-aged population to retired-aged ratio continues to
deteriorate due to multi-decadal adherence to China's official one-child
policy. That said, just under 2 million/month are involved in
urbanization ... 250 million to be re-settled by 2025.
comparison purposes, the chart illustrates official
China GDP data expressed both as QY/Y (same quarter
year-over-year) & Q/Q (qtr-over-qtr). The former is an
antiquated reporting method still in use by China and
the latter is the conventional metric used in the USA,
Canada & most other jurisdictions. To give vivid context
to the extent of the smoothing issue, using QY/Y format
on USA GDP data yields a -4.6% Great Recession trough,
rather than the familiar -8.9% rate. Similarly,
the Eurozone trough was -5.3% QY/Y & -11.1% Q/Q.
proprietary measure of broad economic data filters out
the reporting period noise. The IMF team has
assisted immensely in correcting the double-counting and
seasonal adjustment errors within the official
Chinese real GDP data collection since 2007.
Trendlines Research takes pride in its overwhelming task
of securing raw Q/Q data for its chart presentation.
This methodology is employed in all three of its
Recession Indicators (Canada/China/USA) for its superior
reflection of the quarterly pace of economic activity
and is the preferred metric for international
accuracy and timeliness make the TRENDLines Recession Indicator the
premiere composite leading economic indicator available for Canada,
China & USA