Few believe the Chinese official economic data. But they are still used for analysis because good alternatives are not many. Official figures for 2016 are telling us that real estate in China is again on the rise, loans to grow by leaps and bounds, manufacturing activity returns, state-owned enterprises to invest, like not caring about tomorrow, and wallets of their private competitors are empty.
At the same time, the profit of most companies is negligible. Trying to repay its huge debts, some of them even closed.
Once the official data is unreliable how to find out what is really going on in China? Fortunately, we have the “China Beige book” (China Beige Book (CBB), according to which real economic indicators are much below the official.
CBB collects data of thousands of Chinese firms each quarter, including interviews with local leaders and bankers. Although it does not give specific figures, but logs as many companies have increased their incomes or how many laid-off workers, for example.
From the Beige book report for the third quarter of 2016 shows that the Chinese authorities resorted to old methods of stimulation, to provide employment, thus undermining hopes for a transition to an economy focused on the consumer and services sectors.
“The growth this quarter brought an exceptionally engines the “old economy” manufacturing, real estate and commodities. The “new economy” — the service sector, particularly transport and retail trade, showed weak results,” the report says.
Beige book China
In accordance with the official figures of production, the Beige book reported an increase of revenues of production companies 53%, 9% more than last quarter.
The real estate sector, according to official figures, is experiencing unprecedented growth, increased prices, and sales. Beige book reports that 52% of companies increased their revenues, 4% more than last quarter.
More debt
Indicators in manufacturing and real estate sector rebounded due to the increase in debt and investment in infrastructure, mainly thanks to mortgage loans and investment by state enterprises.
“The number of firms who had taken out loans, jumped to the highest level in the last three years,” the report says.
According to official data, Bank credit grew in August by 13% compared to the previous year, and SVV reported that 27% of companies received loans, 10% more than in the previous quarter.
“If sales and prices will continue to rise in the fourth quarter, it will be associated with greater use of loans,” — said in the Beige book on real estate. According to the people’s Bank of China (PBOC), domestic loans made up 71% of new Bank loans in August.
The report also confirmed that state-owned enterprises invested the most, 60% of them increased capital costs 16% more than in the second quarter.
“Aspiring to greater growth in the Chinese policy is likely to set aside his goal of pereplanirovana economy and double reduction of the credit investment,” — said in a recent report by Fathom Consulting on China. The numbers on the ground have confirmed this assessment.
On the other hand, small private companies have not invested much. Small companies have increased investment in 34% of cases, compared with 44% in the previous quarter.
“While we still see Bank borrowing … as the most important driving force in the short to medium term, we expect that sustainable growth will be based on more active attraction of private capital”, — the report says the investment Bank Goldman Sachs.
The price of Central planning
The strategy of centralized planning leads to higher costs. “According to the Beige book, earnings and cash flow has decreased due to increase in borrowing and investment,” the report said. Only 45% of companies reported increased profits, compared with 47% last quarter. CBB indicates that the cash flow abroad has deteriorated because of rising defaults of companies this year.
The main reason for returning to the old method of stimulation, in accordance with the NBR became a fear of the Chinese authorities before unemployment began to increase, according to the CBB, during the second quarter. Official unemployment figures are very unreliable, she allegedly remained at 4% in the last ten years.
However, after the intensive investment 38% of companies said they hired more people in the third quarter. “The job has increased again, and is the most important issue for the Central government,” says the CBB.
But achieving a small growth at the expense of lending — isn’t that an old trick? And what about the much-vaunted restoration of economic balance and reform?
“Economics, more oriented to services will lead to an increase in the share of labor income in GDP, but a more redistributive fiscal policy is needed to reduce income disparities and provide more equal opportunities for urban and rural households”, — said in a recent report by the International monetary Fund (IMF).
Alas, the Beige book data show that in China this is not happening. In any case, in the third quarter was made a step back.
“Services, particularly transport and retail trade suffered greatly in the third quarter”, — is reported in the Beige book. Only 53% of services companies reported increased profits, compared to 57% in the second quarter.
