International | Jun 16 2009
By Chris Shaw
According to Standard Chartered, the most recent data to come out on the Chinese economy suggest a recovery is in place, though one that is likely to take some time before growth really picks up steam.
As evidence of the recovery the group points out the consumer price index returned to positive growth in May and fixed asset growth is accelerating, the 32.9% increase in the first five months of this year being a rate faster than that of the same period in 2008.
This growth, driven largely by local government’s pushing new projects through, is helping to offset what remains a slow rate of improvement in private investment. Also, the group notes the rate of decline in exports in recent months is showing signs of easing as export orders are slowly improving.
In the group’s view, less encouraging is the fact retail sales rose 15.2% in May, as while the headline number is strong the way the data are measured paints a flattering picture of the level of real consumption given consumer confidence is still not very high.
Standard Chartered is also cautious on industrial production as while it rose in May compared to April it remains at relatively weak levels, as do associated measures such as electricity production. In contrast, Danske Bank is far more positive on the outlook for industrial production and by extension the GDP growth outlook given the strong link between the two measures.
On Danske Bank’s numbers while industrial production increased by 8.9% in May in year-on-year terms, which is how the Chinese government reports the figure, over the past three months it has actually risen by more than 20% in quarter-on-quarter numbers.
In Addition, weak industrial production numbers in the second half of 2008 means comparable numbers in the second half of this year should show stronger growth, Danske Bank forecasting by year’s end the measure could be showing 15% growth in year-on-year terms.
The bank estimates industrial production of around 9% indicates GDP growth of about 7%, so if its assessment is correct and industrial production is growing at closer to 15% by year’s end it suggests the Chinese economy could be back to double digit GDP growth by the end of 2009.
If this was the case the bank expects there will be further
appreciation of the Chinese currency, while it also sees a risk of the government moving to tighten moentary policy by early next year, if not sooner. As Danske Bank points out, the risk is in keeping policy too easy for too long it could create the next Chinese asset bubble.