Source of chart: http://blogs.ft.com/beyond-brics/
By John Richardson
THERE has been a hugely important shift in the attitude of China’s central government.
In the old days, when they set a target of say 12% national industrial production growth for a particular year, such targets were usually wildly exceeded.
This was the result of local governments, anxious to generate revenue and eager to meet ambitious regional GDP targets set by Beijing, investing very heavily in new industrial capacity and infrastructure.
Everything has changed with the arrival of the new leaders. Now, when Xi Jinping and Li Keqiang and their colleagues set a particular nationwide target, they are determined to make sure that target is met in order to deal with the bad-debt crisis and rebalance the economy.
Thus, when last week’s first-quarter 7.7% GDP growth was announced, which was greeted with widespread surprise and disappointment by most economists, Beijing described the figure as “reasonable”. It is reasonable to, in fact, expect a further deceleration growth as China’s full-year 2013 target is 7.5%.
And, as the Wall Street Journal reported yesterday: “China faces downward pressure on industrial production growth this year, but there are benefits from an ‘appropriate deceleration,’ an official with the country’s Ministry of Industry and Information Technology said.
“An ‘appropriate deceleration’ in industrial production would be normal after decades of fast growth, would help ease pressure on resources, and would promote economic restructuring, Xiao Chunquan, head of the ministry’s economic operations monitoring and adjustment bureau, said at a news briefing.
“In March, China’s value-added industrial production rose 8.9% from a year earlier, according to figures released by the National Bureau of Statistics. In the first quarter, it rose 9.5% from a year earlier.
“Mr. Xiao said the first-quarter growth reading for industrial production was ‘basically in-line with expectations.’
“The ministry has an official forecast, unveiled in January, of 10% growth for industrial production growth this year, unchanged from last year’s growth rate. In 2011, industrial production rose 13.9%.”
But the detail behind yesterday’s flash HSBC PMI Index for April, which showed a fall to 50.5 in April from 51.6 in March (see the above chart), might result in a revival of the “worst things get, the better they will soon be” theory.
“A sub-index measuring new export orders fell to 48.6 in April from 50.5 in March, reflecting weaker global demand as the US economic recovery remains fragile and the euro zone is mired in recession,” wrote Reuters.
Beijing might, we agree, introduce measures to boost domestic consumption in H2 because of the weak export environment.
But these will be carefully targeted measures designed to boost the incomes of lower-paid workers, as part of economic rebalancing.
The easy fixes for growth – of a further surge in bank lending and yet-more spending on infrastructure and industrial capacity – are economically and politically impossible.