China’s economic growth sustains predictable pace

SHANGHAI—Leave it to other countries to soar and swoon in their quarterly economic performance. China prefers a steady pace, at least in its officially reported data.

On Monday the country announced that its economy had expanded 6.9 percent in the second quarter, unchanged from the year-on-year growth rate in the first quarter.

Powering the Chinese economy were many of the familiar sectors: brisk construction of apartment buildings; strong retail sales, especially online; and rising government-deficit spending on infrastructure, including new highways and high-speed rail lines.

Much of the new infrastructure is in the sparsely inhabited western deserts, where its short-term economic usefulness may be limited. But President Xi Jinping has a strategic vision, the “One Belt, One Road” plan, to link the economies of Asia, the Middle East and much of Europe and eastern Africa to the Chinese economy.

What keeps the growth rate of the Chinese economy so smooth? Accounting sleight of hand may play some role. Studies over the years have found that China’s national statisticians appear to overstate growth during periods of economic weakness and understate growth when the economy is booming.

A series of recent scandals, particularly in China’s northeast, have also indicated that local officials may overreport economic activity to Beijing when local industries, like coal mining and steel production, run into difficulty.

China said last Friday afternoon that it was revising its economic output data to take better account of fast-growing sectors, like intellectual property, health care, tourism and emerging industries. But Xing Zhihong, a spokesman for the National Bureau of Statistics, said on Monday morning that this was a continuing project that had not been applied to the second-quarter growth statistics.

China’s consistent growth also reflects the government’s constant intervention as officials try to reach predetermined targets for the country’s economy—currently 6.5-percent growth or better.

Keep on lending

The biggest reason the Chinese economy keeps growing quickly is that the state-controlled banking system keeps pouring in loans, although the government began tapering the flow slightly during the second quarter.

Total social financing plus bonds, the broadest measure of credit, expanded 14.7 percent in June compared with the same month a year earlier. In most countries, that would be a breathtaking pace. But in China, it was a slight slowdown: Credit was up 15.3 percent in May from a year earlier.

The Communist Party Congress, which is held once every five years and chooses the country’s top leadership, will be in mid-autumn. So China’s leaders have been eager to keep the economy growing briskly at least until then.

China has many tools for managing a debt buildup. More than half the credit in its economy consists of loans from state-controlled banks to state-owned enterprises. But Moody’s Investors Service downgraded China’s sovereign debt by a notch on May 24, expressing worry about the broader buildup of credit.

Factories and services surge

While a sizable chunk of China’s economy may depend these days on building roads and rail lines into the desert using borrowed money, industrial production and services are also strong.

Steel demand has been vigorous, especially in residential construction. Housing prices have surged in the past 15 months, ever since the government decided during a period of economic weakness in early 2016 to make it much easier for families to borrow for
home buying.

Some of the biggest cities, like Beijing, have recently tried to curb real-estate speculation with administrative limits, but these rules have had limited effect, as credit has stayed plentiful. Overall industrial production rose 7.6 percent in June from a year earlier, the government announced on  Monday morning, an unexpectedly faster tempo than in May’s 6.5 percent.

Year-on-year growth in retail sales accelerated to 11 percent in June, from 10.7 percent in May, while fixed-asset investment also picked up speed in June.

Trade sustains economy

Part of China’s economic health in the second quarter reflected robust exports, with demand beginning to recover in Europe and particularly the US after a long period of depressed growth. But what counts in the overall economy is not the value of the exports but whether the trade surplus narrows or widens. In that respect, there were a few clouds on China’s horizon.

China’s imports rose 14.5 percent in the second quarter from the same period last year,  as prices soared for iron ore and other raw materials essential to Chinese manufacturing. Chinese exports rose only 9.1 percent in the second quarter.

The composition of Chinese exports also changed in ways that could intensify trade friction and affect China’s trade surplus. China is becoming even more dependent on exports to the US, with sales reaching their second-highest level ever last month, trailing only September 2015.

Chinese imports from the US have also risen, but most of the extra purchases have been oil and other raw materials, which create many fewer jobs than
manufacturing.

President Donald J. Trump promised during his campaign to create more US jobs through a more confrontational approach on trade toward China. But since taking office, he has focused more heavily on addressing North Korea’s nuclear and ballistic missile programs and on very narrow trade talks involving industries, like steel manufacturing and beef production.