When Lower Growth Is Good News

 

Beijing

Beijing_smog_comparison_August_2005.png

Life on the left, with lower growth, or life on the right with a higher GDP number. What would you choose?

Source of picture: Wikimedia

 

By John Richardson

WHEN is lower growth good news? Monday ‘s announcement that China grew by a relatively modest 7.7% in Q1 is one example.

As the FT’s The World blog writes:

“The government itself is not so worried. Comments by Premier Li Keqiang on Sunday suggested Beijing is squarely focusing on reforms as the new leadership attempts to steer China towards a more sustainable consumer-based economy that has to be more beneficial for both Chinese and global growth in the long-run.

” A crackdown on corruption – in the form of policies to rein in lavish spending by government officials – was a cause of the slowdown and is not a bad thing, particularly as our correspondent in Beijing Simon Rabinovitch writes:

‘The frugality drive is partly an attempt to put more money in the pockets of ordinary people and give officials less reason to be corrupt.’

“Measures to deflate a real-estate bubble are also welcome. it only takes a look at the housing bubbles in the US and various eurozone member countries to know that those are painful when they burst.

“Growth of 7.7% still very good, especially compared with the vast majority of G20 economies.”

We think that another factor behind the lower-than-expected growth could be efforts to clean-up the environment. For example, we are picking up anecdotal reports that chemicals factories are under greater pressure to either reduce their emissions or shut down. This must, surely, also apply to other industries.

Central and local government initiatives to rein-in auto sales must also be welcomed by most people living in China’s notoriously polluted cities.

But one group of people lamenting Monday’s “unexpected” news are the commodities exporters to China.

“For the global economy this data is bad news. Commodity exporters are in trouble,” an anonymous investor was quoted as saying in the same FT blog post.

“I would be very worried about places like Brazil, Indonesia, Australia and the like. The current level of GDP growth in China is OK with China but not OK for the currencies above.”

And, of course, the same applies to chemicals exporters to China.

Get used to it. This government means what it says, says what it means and has limited time to achieve change, given the scale of the problems.

There will be no second-half-of-the-year return to major fiscal stimulus, which is the hope being expressed by some South Korean cracker operators, according to one of the blog’s ICIS colleagues.

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