Figures on Chinese economy could still cause sleepless nights

The headline figures on the world’s second largest economy are likely to induce a fair amount of anxiety. Imports, exports and producer prices are all down, and another batch of weak data will do little to give confidence a boost.

Add this to the near-collapse of the stock market and the shock devaluation of the currency last month, which triggered a mass sell-off in currencies, and you’ve got a pretty weak picture, even though the economy is officially forecast to grow by about 7 per cent this year.

China's exports fell in August on the back of weak demand in places such as Europe, with overseas shipments down 5.5 per cent from a year earlier in dollar terms, according to customs data. Imports fell 13.8 per cent, widening from an 8.1 per cent decrease and leaving a trade surplus of $60.2 billion (€53.66 billion).

"It is too soon to expect to see in the data any export boost from the renminbi's drop in value in early August, but we imagine it will have a modest impact in any case, given sedate demand overseas and the steeper falls recorded in the currencies of China's trading rivals," said Tom Rafferty, Asia economist for The Economist Intelligence Unit in Beijing.

Carmaker Ford said it sold 79,608 vehicles in China during August, a 3 per cent decrease compared with 2014.

‘New normal’

Premier

Li Keqiang

, who is the senior leader charged with supporting the economy, is trying to calm people’s fears.

“China will not see a hard landing,” Li told the World Economic Forum’s meeting in Dalian, commonly referred to as the “summer Davos”.

He said managing the “new normal” of slower growth was like playing Chinese chess, trying to balance stimulus with long-term reform.

Li said China had plenty of tools at its disposal.

"You need to be careful with immediate moves you take. That is to say, we need to take targeted measures to resist downward pressure on the economy; at the same time we need to build momentum for sustainable and healthy economic growth," Bloomberg quoted him as saying.

The question is whether Li and others can shore up global confidence in the economy as it slows down.

Policymakers are speaking in chorus: People's Bank of China governor Zhou Xiaochuan said earlier this month that stock market instability was over and state intervention had stopped a more serious rout taking place.

The government is clearly trying to stop more capital flowing overseas after the devaluation of the yuan. China refrained from granting new quotas for residents to invest in overseas markets for a fifth month in August, the longest halt in six years, as the authorities try to shore up yuan weakness. Currency depreciation cut foreign exchange reserves by a record €83.57 billion in August.

Slow progress

Many investors are becoming more sceptical about China in the absence of progress on much-needed and long-promised reforms.

The EU Chamber of Commerce bemoans the leadership’s overwrought concern with national security issues, obfuscation of the law and slow progress in the overall implementation of market reforms.

“At best it leaves a mixed picture, suggesting that part of China’s reform agenda includes new restrictions and that the country is even closing off altogether in some areas of its economy,” European Chamber president Jörg Wuttke said at the launch of a position paper on reform.

“In fact, never before has the European chamber seen such a contradictory government agenda of reform and closing up. I am very concerned that reform momentum has been lost.”

There are bright spots in the economy, especially on the services side and in areas of consumption. By September 5th, Chinese cinema box office revenues passed 30 billion yuan (€4.19 billion). Last year’s full-year total was €4.14 billion. To compare, North American box office was €9.23 billion last year, so China’s catching up. In 2004, for example, China’s box office was €162 million.

The forecast for full-year Chinese box office is for a whopping €6.28 billion.