China’s economy runs out of gas

Today’s news on the Chinese economy – that growth has slowed for the sixth quarter running – is no big surprise: the question for months now has been whether China’s landing will be hard or soft, not whether there will be a landing. Indeed, some analysts feel that the numbers suggest a recovery in the second half, and both Asian and European markets are buoyed by apparent relief the data isn’t worse. 

Official Chinese statistics have to be taken with a large pinch of salt, obviously. Looking at the headline GDP numbers isn’t enough, as we pointed out recently – electricity consumption is probably a better gauge. But wait – there’s a further complication, because electricity may now be a poor proxy as well, after it emerged local officials may be urging businesses to pump up a whole range of economic indicators.  

As a proxy for the proxy, Standard Chartered recently suggested looking at oil. Gasoline production has been flattening off in the past six months, ‘suggesting much slower growth in the industrial sector’. Another indicator that Standard Chartered likes is freight movement by waterway and by rail, and rail freight has been falling. It all points to, as the bank says, greater sluggishness in the economy, though not an all-out recession. 

There’s no doubt of the wider picture though – the global economy is sputtering and the EU’s malaise has gone viral. Singapore has reported a surprise contraction in GDP, while the Bank of Korea unexpectedly cut its interest rates as well as lowered its 2012 growth forecast for the second time this year. US data has been lacklustre. The global growth machine is cranking down, with no signs of salvation from any quarter.