Posted by: Dexter Roberts on December 15, 2009
Beijing on Friday announced its economic numbers for November and analysts are saying they are good news for China as it coasts towards 2010. Strong economic growth continues to be powered by state spending through the $586 billion stimulus package as well as substantial lending (total credit and money growth was up 34% in November over a year ago) boosting industrial production a strong 19.2%. And there are signs of recovery in trade too, with imports up close to 27% in November. Even though exports declined 1.2% in U.S. dollar terms, this was a significant improvement from earlier in the year.
China’s people did their part, too: Retail sales grew a respectable 15.8%, albeit down from 20.8% of a year ago, and down slightly from the 16.2% pace of growth in October. And the mainland is even seeing inflation for the first time in nine months, with CPI inching up 0.6% in November over a year ago and producer prices up 0.6% from October. UBS China economist Tao Wang, in a Dec. 12 report, looks at the data and says China has a “strong economic recovery.” Adds China-watcher Carl B. Weinberg of High Frequency Economics, writing in a report dated Dec. 14: “We believe the economy is regaining its footing. GDP growth near 10% year-over-year is possible this quarter.”
But given China’s plans to keep priming the pump to drive its economy (as announced at the annual Central Economic Work Conference earlier this month), I’m worrying about how Beijing is going to wean itself off its loose fiscal and monetary policy and get domestic consumption to start playing a bigger role going forward—its long-touted goal.
One problem is already clear: an asset bubble in China’s red hot real estate sector. Despite Beijing’s announcements that it will take measures to cool growth (in part by extending the period of a resale tax from two to five years), many expect real estate prices to keep on soaring. November saw 5.7% growth in real estate prices across 70 major cities — the fastest since July 2008 - and even China’s top developers are warning of price bubbles in cities like Shanghai, Shenzhen and Beijing. China is facing “excessive growth in home prices in some cities,” which the government will take action against, the official Xinhua news agency reported yesterday.
Just as frightening is the prospect of even more excess capacity in China’s already glutted industrial sectors, like chemicals, cement, and wind power generation equipment. Take steel: Production is up 10.5% this year, and capacity is on track to exceed 700 million metric tons annually—about 200 million more than China consumes. I wrote about this problem as well as the potential it has to drive more trade spats going forward, in our most recent issue of Bloomberg BusinessWeek and many people are nervous—including China’s own officials - that overcapacity will get even worse over the next year.