China's demand growth continues to be weak down the main value chains.
Auto sales are the most obvious example. As the chart shows, they have recovered from the very slow period over the Lunar New Year holiday, but are still only up 2% (red diamond) versus 2011 levels (green line).
Even this growth has only been due to price cuts. Whilst the head of the dealers association warned "unsold cars are crowding dealer lots in cities from Guangzhou in the south to Xi'an to the west."
This pattern is confirmed by other key markets. Investment in real estate has been 13% of GDP in recent years, a clear sign of China's unbalanced economy. It was growing 20%/year in the 2009-11 boom period. A key area is construction of new residential floor space:
• This grew 16.2% in January-April last year versus 2010
• This year, it fell 4.2% in the same period
• The slowdown is even worse when one remembers that growth had still been 5.1% in the first two months of this year
This, unfortunately, is what happens when credit bubbles start to implode.
Air is starting to rush out of the balloon, even faster than it was pumped in during the government's 2009-10 lending boom. Home prices have now been falling for 8 months in China's top 100 cities.