China’s new leaders face slowing economy, rising protests

Economic growth


China lend Nov12.pngThere are two great myths in the modern world. One, as discussed yesterday, is that central banks can restore growth to SuperCycle levels. The other is that China’s economy will grow consistenly at high rates for the next decade. Both are wishful thinking, not robust strategies.

The chart above highlights the problems with the second myth. China’s GDP data is routinely manipulated to ensure local Communist Party leaders meet their targets. Instead, the blog focuses on two much more reliable economic indicators:

• Electricity consumption (green line) is up 4.9% this year versus 2011
• Bank lending (red column) fell 14% in October

New premier-designate Li Keqiang has said electricity consumption (like bank lending) is one of only 3 ‘real’ indicators, with the GDP figure being ‘man-made and therefore unreliable’. It grew 14% last year as the impact of the 2008-10 stimulus programmes peaked, and was forecast to rise 10% this year by the government. This target cannot now be met.

Similarly, the jump in bank lending between May – September was clearly due to pre-Congress jockeying for power. Local Party bosses and the powerful State Owned Enterprises were given $1.1tn of loans for their pet projects. But October’s lending has slipped again.

Also worrying was the lack of any sign in the leadership speeches that Xi and Li intend to press on with the policy changes proposed by the World Bank and notionally agreed at last March’s Party Conference. Instead, as David Pilling noted in the Financial Times:

“Protests against environmental degradation, local corruption and illegal land grabs have reached such a level that the internal security budget now outstrips that allocated to national defence.”

China’s new leadership faces a very difficult few years. Even the official GDP growth target was reduced to only 7% per annum in President Hu’s Congress speech. The real number is likely, as this year, to be a lot lower.


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