A rash of optimism –or maybe forlorn hope–has been breaking out among some economists who are taking a variety of recent economic signals as a sign that China’s economy may have hit bottom– or even begun a rebound. This seems a clear case of hope triumphing over experience considering the state of the rest of the world, but is worth a look. Most widely cited has been the rise in China’s Purchasing Managers Index. The Wall Street Journal blog has a good round up of economists on this issue here, all of them hopeful. The ever sensible (and independent) Michael Pettis has a good assessment of the significance of this on his blog that doesn’t see to many signs of hope. Then there’s the leap in the Baltic Dry Index, an obscure (to most people) measure of shipping rates. FT article here that explains why this could be a one off. Then there’s a rise in base metal prices related to Chinese demand. Economist Jing Ulrich of JP Morgan has this to say:
The Chinese base metal industries have shown signs of strengthening after being squeezed by slumping demand and aggressive destocking for several months. Some raw material suppliers and observers have pointed to a recent pick up in steel production, rising prices and declining iron ore stockpiles as evidence of a recovery in underlying demand, with infrastructure spending projects getting underway. This may however be a premature conclusion – temporary restocking and government efforts to support local industry are likely major factors behind the recent buying.
Ok. So that’s that. What else? Some people are also citing rises in scrap metal prices though I haven’t been able to find much evidence of this. There’s also Chinese consumer confidence over the Lunar New Year holiday (which still has three days to run). Here’s what the chaps over at Access Asia say:
…the news has been pretty good. Not only have Chinese consumers been spending, but, according to the official estimates, consumers have been very mobile as well. The initial estimates put retail sales 13.8% up on the same period in 2008, with sales of food up 23% y-o-y, beverages up 17.5% and tobacco and alcohol up 14.7%. Meanwhile, there was a 15% increase recorded for growth in tourist traffic and revenue at 19 key national destinations last week, compared with the same week in 08, rising to between 20% and 40% growth in Jiangsu, Zhejiang and Guangdong.
Official estimates are prone to political massage (we are well aware), and yes, first month trends do not provide a failsafe test for future economic trends throughout the year. Yet, the slowdown in China does not appear to be affecting the domestic consumer market, and although China’s economy is still seeing strong growth, despite the drop in the export manufacturing sector, the economy seems to be shifting itself away from its addiction to export sales, and adapting to a growing domestic market.
A bit of a thin reed to base the very large conclusion reached in the last sentence, methinks. Still the Access Asia do know their stuff and first came to China when Peking man was still that fellow with the fancy flints so their views must be added to the mix. Even the miserable Shanghai Composite Index, now down two thirds (!) from its high a year and a bit ago has managed a wheezy rally this week.
So, is it all over and w can now sleep soundly in our beds –in China at least? No. But it certainly bears careful watching. China’s economy is a vast and unique thing which few people would claim to comprehend. Tying to figure out any economy is like driving two hundred miles an hour and using the rear view mirror to navigate, as someone once remarked. In China’s case it’s probably a thousand miles an hour wearing a blindfold. Doesn’t mean we shouldn’t keep trying to get a squint at that mirror though, if you’ll excuse a far too lengthily over-extended metaphor. Eventually we should see a familiar landmark.