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By Ambrose Evans-Pritchard Economics Last updated: January 26th, 2012
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A quick observation.
I could not help noticing that China's imports from Japan fell 16.2pc in December. Imports from Taiwan fell 6.2pc.
The Shanghai Container Freight Index fell 1.4pc to a record low of 919.44 in November, after sliding relentlessly for several months. It has picked up slightly since.
Click to enlarge
The Baltic Dry Index measuring freight rates for ores, grains, and bulk goods, has fallen 44pc over the last year. Kasper Moller from Maersk in Beijing said weak Chinese demand for iron ore was the key culprit.
Cautionary warning. The BDI index also reflects the shipping glut, so it is not a pure indicator.
However, rail, road, river and air freight volume for the whole of China fell to 31780m tons in November (latest data), from 32340m tons in October. Not a big fall, but still negative. (National Bureau of Statistics of China.)
Chinese electricity use was flat in over the Autumn, with a sharp fall in the (year-on-year) growth rates from 8.9pc in September, to 8pc in October, and 7.7pc in December.
Residential investment has been contracting on a monthly basis, and of course property prices are now falling in all but two of China's 70 largest cities.
So how did China pull off an economic growth rate of 8.9pc in the fourth quarter?
Beats me.
I strongly suspect that the trade and power data reveal the true state of China's economy.
There clearly was a pick up in early January but I stick to my view that China has inflated its credit bubble beyond the limits of safety – an increase of 100pc of GDP in five years, or twice US credit growth from 2002-2007 – and that Beijing cannot continue to gain much traction with this sort of artificial stimulus.
Indeed, the extra boost to GDP from each extra yuan of credit has collapsed, according to Fitch Ratings.
A final point. There is a widespread misunderstanding that China's households can easily come to the rescue by cranking up spending because they have the world's highest savings rate, and consumption is just 36pc of GDP.
Prof Michael Pettis from Beijing University puts that one to rest. The Chinese do not have a much higher personal savings rate than other East Asians. The reason why consumption is so low is that wages are low, the worker share of GDP is low, and the whole economy is massively deformed and tilted towards excess investment.
This is deeply structural. It cannot be changed with a flick of the fingers, and contains the seeds of its own destruction.
China is a marvellous country. I wish them the best. But they have not found the secret formula for perpetual uber-growth.
No such formula exists.
Tags: baltic dry index, china, credit bubble, imports, japan, Taiwan
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