Chas' Compilation

A compilation of information and links regarding assorted subjects: politics, religion, science, computers, health, movies, music... essentially whatever I'm reading about, working on or experiencing in life.

Wednesday, August 26, 2015

China's growing pains

China’s economy is in big trouble, but it isn’t collapsing
[...] It has indeed been a brutal day in Chinese markets — and a very, very bad summer. But, while the plunge in China’s stock exchanges Monday and Tuesday signals big trouble, it does not mean things are about to collapse.

The problem is that investors seem to be reading what is happening in China’s highly volatile equity markets as a signal of the state of the economy as a whole — a mistake, experts say.

The two are linked, definitely, but not as much as those outside China seem to imagine. And the overall economy, though struggling mightily, is still showing some signs of life.

“Investors are overreacting about economic risks in China. The collapse of the equity bubble tells us next to nothing about the state of China’s economy,” Julian Jessop, chief global economist at Capital Economics, wrote in a note to clients Monday. “The recent data from other major economies have generally been good and there is little to justify fears of a major global downturn.”

[...]

China knows it needs to undergo a fundamental economic transition, moving away from pumping money into heavy industry, infrastructure investment and the property market, and toward services, consumer spending and tech — a shift that will bring slower growth.

The government understands this and has moved to temper expectations, calling slower growth the “new normal” and vowing to let markets play a “decisive” role in the years ahead.

The trouble is, authorities seem unwilling or unable to let the “new normal” take hold. Their efforts at reform have been piecemeal and halting — they took steps on the currency, for instance, but have yet to move ahead with promises to truly shake up state-owned enterprises.

When the stock market started to slide this summer, the government stepped right in, turning to a series of extraordinary measures, including forcing big investors to buy stock and freezing initial public offerings.

This week, it has taken a more hands-off approach, so far steering clear even as the markets tanked.

The lack of a clear strategy has rightly spooked investors. “It’s a matter of confidence,” said Wei Wei, an analyst at Huaxi Securities in Shanghai, on Tuesday. “China’s economy is not really as bad as people imagine, but people are overreacting. The decline of the stock market reflects people’s expectations.”

Indeed, the picture is not altogether bleak.

[...]

Also lost amid the talk of collapse is the fact that, despite real and worrying problems, China’s economy is still making gains.

There is a debate about how fast China is growing — the government predicts 7 percent GDP growth, but some experts believe the true figure could be as low as 4 or 5 percent. Even if the figure is near the lower end of that range, it is growing still.

China’s industrial sector is struggling badly, but there have been positive signs in terms of services and consumption — the very sectors China hopes to develop.

The latest data show the services sector has become the biggest driver of economic growth in China, expanding 8.4 percent in the first half and accounting for 49.5 percent of GDP, according to government statistics — which, while not perfect, are generally thought to give a sense of trends.

China’s retail sales grew 10.5 percent year on year to 2.43 trillion yuan, or $383.8 billion, in July, slightly down from 10.6 percent growth recorded in June. In the first seven months of this year, retail sales grew 10.4 percent, according to the National Bureau of Statistics.

On Monday, Apple’s chief executive Tim Cook weighed in, saying in an e-mail to CNBC’s Jim Cramer that, from his perspective, things are still looking good.

“I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August,” he wrote. “Obviously I can’t predict the future, but our performance so far this quarter is reassuring.” [...]
Desperate attempts to control the economy stifle free market forces that could work for them. It's a learning curve they are climbing. Read the whole thing for embedded links and more.
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