BEIJING Feb 17 The big debate about how fast
China's economy will grow this year can find some answers in the
real world, where signs suggest the growth giant is slowly but
surely losing its fizz.
From falling power consumption to record-low steel prices, a
clutch of indicators show sluggish investment and domestic
demand are weighing on China's $9.4 trillion economy, a worrying
sign for some economists who are cutting their GDP forecasts for
2014 - which is unusual so early in the year.
Rising interest rates and restrictions that stop wasteful
spending by Chinese governments have depressed investment to at
least a decade-low, making it perhaps the single biggest drag on
the world's No. 2 economy.
The implication is big, especially since investment
accounted for over half of China's 7.7 percent economic growth
last year. Experts believe growth may sag in coming months
towards 7 percent, a rate bound to disconcert investors and even
some policymakers in Beijing worried that the economy is braking
"It will be a few more months before we hit the bottom,"
said Frederic Neumann, an HSBC economist in Hong Kong. "It may
take more aggressive measures from the government to turn things
Financial markets long accustomed to China's stellar,
double-digit growth rates of the past are predictably skittish,
a factor that contributed to the emerging markets selloff this
A confusing run of official Chinese data has provided little
clarity about the future, making it more difficult to gauge
whether Beijing's plan to gear the economy more towards
consumption and services is working. The unpredictability has
left forecasts for growth this year wide ranging from 7 percent
to above 8 percent.
Four separate surveys about the country's manufacturing and
services sectors in recent weeks showed growth slid to
multi-month or multi-year lows in January, as companies fought
falling overseas and local demand. Yet official data this week
showed Chinese exporters had a surprisingly good month in
January as sales jumped 10 percent, and import growth leapt to a
Bank lending figures for January were also strong, despite a
credit clampdown by the central bank.
Analysts say the conflicting signals are exaggerated by data
distortions during the week-long Lunar New Year holiday, which
happens in either January or February, when businesses close
shop for the festivities. Only in April when the government
publishes the data for March will investors know what is really
Yet in the real economy, the signs are pointing downwards.
Take electricity consumption, for example. It was famously
touted by Premier Li Keqiang in 2007 as a good measure of
China's economic pulse, compared to "man-made" gross domestic
product data often massaged by officials trying to prove
Power consumption in the first 20 days of January rose a
mere 2 percent from a year ago, according to China's economic
planner, the National Development and Reform Commission. Jia
Fusheng, a commission official who disclosed the figure,
conceded that the rate is "certainly quite low", but suggested
the Lunar New Year holiday and a relatively warm winter may have
been the cause.
State Grid Corporation of China, which sells
electricity to 85 percent of China's population, is not so
sanguine. It expects business to slow this year as a wobbly
economy and growing environmental awareness temper demand.
Electricity consumption should rise between 6.5 percent and
7 percent this year, State Grid said on its website in January,
down from last year's 7.5 percent increase.
"It's a good indicator of activity in the manufacturing
industry," said Haibin Zhu, a JPMorgan economist. "On the
ground, the sentiment that we got by talking to factories was
not upbeat in January."
IT'S ACTUALLY HEALTHY
Even those skeptical that power consumption paints the true
economic picture find other reasons to be cautious.
Prices for cement, steel and iron ore - the main materials
for constructing buildings and railways - are all falling,
partly because demand is dropping on slower state investment.
Just last week, steel prices slumped to a record
low of 3,380 yuan a tonne and iron ore prices
drooped to a seven-month trough. Cement prices hit a two-month
low of 350 yuan a tonne in January, according to China
Suspended construction work during the winter and fierce
competition between steel mills that have sparked brutal price
wars have dented prices. But so has weaker final demand.
ArcelorMittal, the world's largest steelmaker,
predicted last week that China's steel consumption growth would
slow this year even as prospects improve in the United States
Analysts think much of the drop in demand is the result of
provincial and local governments, who having chalked up at least
$3 trillion in debt, meeting stricter orders from Beijing to cut
graft and frivolous investment, including building flashy
offices for themselves.
Shrinking budgets have even affected New Year revelry.
Retail sales over the Lunar New Year holiday rose at their
slowest rate in five years at 13 percent as officials scrapped
lavish celebrations. Prices of sea cucumber, a delicacy that can
cost several thousands of yuan, are at their lowest in over four
years, said Dong Tao, an economist at Credit Suisse.
"State executives and local officials appear more worried
about their jobs than investment," Tao said.
And rising interest rates are making things worse. Alarmed
by the speedy rise in debt levels in recent years, China's
central bank has nudged short-term rates higher to try to
curtail risky lending. The seven-day bond repurchase rate
, the benchmark rate for short-term lending, is off
near 9 percent highs seen in December, but is still up about 1
percentage point from a year ago at 4.4 percent.
The growing signs of weakness have convinced analysts such
as Tao from Credit Suisse to shave his first-quarter GDP
prediction to 7.3 percent, which would be the slowest pace since
the global financial crisis, from 7.7 percent on an annual
basis. The economy grew 7.7 percent in the fourth quarter.
But to Mark Williams at Capital Economics in London, more
signs of slack is good news, not bad. An orderly slowdown where
wasteful spending is reduced and growth is sliding towards 7
percent is just what China needs as part of reforms to lift
consumption at the expense of investment.
"It's a healthy correction and should be welcomed," said