How Resilient is China’s Economy?

At the moment, there is some confusion about the health of the Chinese economy. Some believe that it is beginning to stagnate, while others suggest that the economy is flowing better than ever before. Currently, the official data being released is largely distrusted (kind of sounds like what many Americans believe when it comes to the IRS, EPA, and White House), and a developing database of alternative indicators are beginning to offer new ways of understanding the development of the second largest economy in the world.

At the moment, there is some confusion about the health of the Chinese economy. Some believe that it is beginning to stagnate, while others suggest that the economy is flowing better than ever before. Currently, the official data being released is largely distrusted (kind of sounds like what many Americans believe when it comes to the IRS, EPA, and White House), and a developing database of alternative indicators are beginning to offer new ways of understanding the development of the second largest economy in the world.

Another Country that Conveys Distrust

The most prominent concern for China’s economy during the second half of 2014 emerges from issues within the real estate sector. As construction begins to fade, there may be a growing demand from materials, from furniture to steel, and the official figures are showing an unpleasant picture, with sales and projects falling throughout July. The statistics provided by China Real Estate Information have shown that the top thirty cities in China were down by 45% year on year.

The slowdown in real estate is beginning to cause a ripple across the industrial sector (shown on 60 Minutes, China is building entire neighborhoods that are empty because there is not enough buyers to live there), and the official data suggests that factory output increases are beginning to slow. On the other hand, electricity output suggests that factory output could be flat-lining entirely, decelerating to a 3.3% annual growth rate, the slowest in over a year.

Further Issues with the Economy

Some suggest that the slowdown in electricity could be a worrying sign of China’s true health, whereas others note that anything from supply outages to less use of air conditioning could provide an explanation for the lower figure.

However, on top of this, there have been signs that high-end consumption has also fallen. Jewelry sales in Hong Kong, and revenue that is being produced by Macao’s casinos are falling. On the other hand, China sales of BMW are currently still going strong, which is not consistent with the idea that a stall in luxury spending could be showing China’s economic ill health.

Good Signs for the Chinese Economy

The consumption of the middle-class is also remaining relatively intact, with a registered 12.2% taking place throughout retail in July. According to the official figures, and alternative indicators, sales of passenger cars continue to be in high gear, whilst Chinese consumers also continue to enjoy YUM! Brand fast foods, such as KFC. It could be that the issue with real estate and the slowing growth in wages could begin to put a damper on Chinese confidence, but so far that hasn’t happened.

Exports are another particular strong point within China’s economy, with overseas sales increasing at the fastest rate since April of last year. Since US economy is going nowhere fast, a demand for products ‘made in china’ is unimpressive. If China is depending on America to pick them up, they better wait until a Republican is in the White House.

Inflation also appears to be under control, with government figures showing a 2.3% year on year increase to consumer prices in July. This is considerably lower than the 3.5% target that Beijing had set for the year, and alternative indicators suggest that prices may even be falling further.