China, like the USA, had a leadership transition in November. And, of course, this led to led to some effective ‘massaging’ of the economy in the preceding months. As the blog noted in November, it was no coincidence that bank lending jumped $1.1tn between May-October, to ensure local communist party chiefs got the projects they wanted for their city or region.
Similarly, as the chart shows, this lending helped to support consumer spending. Auto sales (red line), finished the year up 7%, after zero growth in 2011. This was a quite striking improvement, as they had actually been down 3% in Q1.
But that was before the leadership transition, and this is now. Of course, financial markets have assumed that the improvement will become permanent. Equally, it seems that the further you live from China, the more optimistic you become that a new boom is underway.
However, back in China, the mood is more realistic. The pre-Congress boom has already led to increased inflation. Food prices, so important for most people, were up 4.2% in December, and overall inflation is expected to rise above 3% this month. Lending has already slowed quite dramatically, and was down 17% in Q4 versus 2011.
One telling statistic is that total sales of passenger cars and commercial vehicles were up 4% in 2012, but still totalled only 19.3m. By comparison, motorcycle sales were 23.65 million, but down 15%. This highlights how recent policies have favoured the needs of the relatively few ‘middle class’ Chinese, at the expense of the large numbers of poorer people.
Now the head of China’s car manufacturing association forecasts 5% auto sales growth again this year. Of course, January will be relatively strong, as the Lunar New Year holiday is in February. But he expects the government to “take further measures to slow vehicle sales”, in line with their published policy of redirecting growth from the middle classes to the rural poor.