By John Richardson
THE consensus view is that Chinese growth will be fine at the very least for the first half of this year, and possibly for the whole of 2013, thanks to all the money still sloshing around the economy.
An additional $19.1bn of infrastructure spending, which was announced by Beijing earlier this week, is a drop in the ocean compared with the $1.1 trillion allocated last year. But the latest spending might well be viewed as a sign that China’s new leaders are prepared to do “whatever it takes”, to borrow a European phrase, to maintain the recovery.
The latest OECD leading economic indicators, which show a weakening of the Chinese economy (see above chart), could also be used by financial and commodity markets to support the notion that the central government will further open the spigot (the OECD indicators attempt to predict turns in the business cycle nine months ahead).
Once again, therefore, we could be in the surreal world of the “worst things get, the better they are”.
But how much time do China’s new leaders really have?
In this wired age, the government faces rising dissent. An increasingly informed public is demanding less pollution, better working conditions, more equal income distribution and an effective crackdown on corruption.
This all points to the pressing need for economic rebalancing, as inflationary pressures also build.
Let’s assume, though, that the majority opinion is right.
Strong headline GDP growth will not necessarily deliver strong chemicals and polymer demand growth, as 2006-2012 taught us.
The small and medium-sized enterprises will continue to struggle throughout this year, even if GDP growth is greater than in 2012.
We are also worried that a significant global, downward correction in financial and commodity markets is a possibility by as early as Q2.
And stronger headline growth, based on more fiscal stimulus, will only make the eventual, inevitable rebalancing more painful.