Investment Contrarians

Confusing Data from China; What’s Really Happening?

By for Investment Contrarians |

210113_IC_cekerevacRecently, we have heard and seen some data stating that the Chinese economy is beginning to rebound. Many analysts have started to raise their economic forecast for the Chinese economy in 2013.

One of the difficult aspects when calculating an economic forecast for the Chinese economy is that much of the official data from China are questionable.

While recent data have shown that the Chinese economy has begun re-accelerating during the fourth quarter 2012, new information raises some questions.

The China Beige Book (CBB) International states that, in its analysis of the fourth quarter, it sees a significant decline in corporate loans. As the CBB states, its editors were “shocked” that new loans accounted for less than 20% of the total lending. (Source: Harjani, A., “The China Beige Book Has Some ‘Shocking’ Data,” CNBC, January 16, 2013.)

The CBB interviews over 2,000 business executives across the country to come up with its survey results. Another worrying sign in the report for the Chinese economy that will certainly cloud any economic forecast is that the percentage of surveyed companies borrowing money continues to decline, even though interest rates have been cut by the People’s Bank of China.

While the Chinese economy is trying to become more consumer-oriented and domestic, exports still play a very large role. With the buildup in their inventory, manufacturing firms appear to be anticipating growth worldwide for 2013.

If this doesn’t occur, the Chinese economy could be vulnerable to a significant pullback. The difficulty in all of this analysis when trying to calculate an economic forecast is that so many variables and so much questionable data make it extremely complicated to come up with a definitive number.

The Chinese economy depends a lot on exporting to Europe. Any economic forecast for the Chinese economy certainly needs to take into account the economic weakness on the European continent. I don’t see this improving substantially in 2013.

The U.S. economy has shown some improvement, but is it enough to overcome European weakness? That’s hard to say.

The real concern in my economic forecast for the Chinese economy is what might happen to this inventory buildup if there isn’t enough demand; we would be looking at a substantial drag on the Chinese economy for at least part, if not all, of 2013.

While it is good to see some optimistic signs, this latest data on the Chinese economy showing a lack of loan demand growth certainly raises questions about the underlying strength of the economy.

I would want to see several more quarters of sustainable growth before I can substantially increase my economic forecast for the Chinese economy.

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  • Jeremy Norton

    This is very informative. It is true that the Chinese are placing huge bets when it comes to exporting goods to Europe. Great post!