‘Rail freight movements are no longer the key indicator in China they once were,’ writes Paul French.
Just how should we measure China’s economy in 2016? Which metrics you choose to prioritise tends to determine your outlook. Most analysts now accept lower GDP growth rates going forward and so 6% can appear fairly healthy. But, say those looking at other metrics, how to explain the weaknesses in areas such as electricity consumption and rail freight movements that would seem to indicate significantly less economic activity is actually taking place across the country? Those preferring to look at metrics such as retail sales growth and the phenomenal rise of express package delivery firms and B2C e-commerce transactions can argue that things are actually healthier than 6% overall growth might indicate.
Retail sales are a more reliable metric than the behemoth number of GDP. Individual but important retail firms indicate the strong growth is real – for instance, Apple reported 14% growth in the last quarter while Mercedes-Benz reported sales up 50% in January and their orderbooks looking healthy for the remainder of the first half of the year.
There are explanations for the poorer metrics of electricity consumption and rail freight movements (both of which are generally reliable numbers) – the slowdown in construction has a significant knock-on as regards power consumption and rail transport. Back in the mid-2000s construction and heavy industry drove electricity use growth and both of these are in retreat at the moment. Similarly steel production declined 2% last year as construction slumped. With so much continued talk of ‘ghost cities’ this is not necessarily a bad thing and should (and is) stimulating the property market as supply currently matches demand to a greater degree than any time in the last decade.
For those that watch transportation metrics closely it should be noted that while rail freight is down, road transportation is booming. Highways now carry 79% of total freight now, up from 72% in 2006, and highway traffic rose 6% last year. Quite simply rail freight movements are no longer the key indicator they once were. Road freight movement is harder to quantify as it involves vast numbers of small trucking operators, but still it is growing. Traditionally 50% of rail freight cargoes have been coal and the decline in heavy industry as well as the rise in non-coal fired generators means a decline in that key sector.
So, in conclusion, what can we say of the Chinese economy in the first half of 2016? Stable growth seems a fair analysis though, looking to the rest of the year, a pick up in non-consumer sectors hasn’t occurred as many thought and that could mean a drag on growth and, a major concern for the party state, a rise in unemployment. This could mean a meagre 4% growth for 2016 even with rising consumer spending. This may give succour to the China bears to some degree, but it certainly doesn’t indicate a collapse scenario that some have been predicting.
This article first appeared in the latest edition of Maritime CEO magazine, which launched this week. Readers can access the full magazine for free by clicking here.