China’s economy looking resilient during economic transition and should be solidly safe by 2020

Bloomberg Businessweek performed a review of the best available alternative numbers for China’s economy. It reveals a story strikingly similar to that told by official statistics. Real estate is weak, and that is denting industrial production. But overseas sales are resilient, and so is consumption by China’s middle class. With inflation low and stimulus efforts so far limited, the government has scope to do more to boost China’s economic growth.

A trawl of the news reveals that fears of an imminent collapse in China’s growth have eased. A search for stories with the words “China” and “hard landing” shows a fall to 86 stories in July from a recent high of 175 in June. News coverage also confirms that China’s government has kept its stimulus in the “mini” category. A little more than 1,000 stories used the words “China” and “stimulus” in July, compared with a high of 2,900 in March 2009—the time of the government’s 4 trillion yuan splurge.

Nextbigfuture take on data roughly confirming the official economic story

China’s economy is in a transition phase. China being able to grow at 7.0-7.5% from now through 2016 and at 6.0-7.0% from 2017 to 2020 will give China the time to grow its consumer and service economies. By 2020, China’s economy would be about 50% bigger than it is now. This would also make China’s economy 30-35% larger than the US economy in 2020.

China’s per capita income on a nominal basis would be about $13000 and on a purchasing power parity basis would be about $22000. This would be put China between Mexico and Malyasia in per capita GDP PPP. This is about where South Korea was in 2005.

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Inflation appears under control. Government figures show a muted 2.3 percent year-on-year increase in consumer prices in July, considerably below Beijing’s 3.5 percent target for the year. Alternative indicators suggest prices might even be falling. The Alibaba Internet Shopping Price Index puts prices for goods bought on the company’s Taobao and TMall online marketplaces in deflationary territory. Deflation like what has happened in Japan would be a worrying sign. In this case, though, greater competitive pressure online, rather than weakness in demand, is probably pushing prices down.

Animal spirits appeared a little lacking in the July loan statistics. Total social finance—China’s broadest measure of credit—collapsed to the lowest level since the Lehman crisis. That raised fears of fragility in the banking sector and weak demand for credit from businesses. Alternative indicators paint a less pessimistic picture. A stronger flow of initial public offerings in the past few months, as the China Securities Regulatory Commission opens the door to new listings, points to a healthy demand for growth capital.

Exports are another strong point. Overseas sales have been expanding at the fastest rate, say official data, since April 2013. Alternative indicators point in the same direction. The movement of containers at Shanghai’s port—a highly visible marker of trade volume—is accelerating. As the U.S. economy picks up, demand for “made in China” is rebounding with it.

There are also signs that high-end consumption is down. Hong Kong jewelry sales and revenue at Macao’s casinos—both widely used to track the spending of China’s rich—are both falling. It’s tempting to draw a straight line between General Secretary Xi Jinping’s crackdown on corruption and the decline in demand for the finer things in life. That’s too simplistic. BMW’s (BMW:GR) China sales are still in the fast lane—hardly consistent with a stall in China luxury spending.

The middle-class consumption story also remains intact. Retail sales were registering solid 12.2 percent year-on-year growth in July, according to official figures. Alternative indicators paint a similar picture. Sales of passenger cars are in high gear. Yum! Brands (YUM)—owner of KFC—reports that Chinese consumers continue to find its chicken wings worth paying good yuan for. It’s possible that fading real estate and slowing wage growth will puncture China’s consumer confidence. It hasn’t happened yet.

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