China Beige Book Sees Signs of Shift to Slower Growth Already
(Bloomberg) -- Recent economic data offer a "warning for 2018" now that Chinese leaders are less motivated to prop up growth in the wake of their Congress in October, according to the China Beige Book.
"Incentives to ensure the economy was growing smartly at the time of the Communist Party Congress do not apply as next year wears on," CBB president Leland Miller and chief economist Derek Scissors said in a report released on Wednesday.
Fourth-quarter results already show some signs of a transition to slower growth, according to a private survey by CBB International, which collects anecdotal accounts similar to those in the Federal Reserve’s Beige Book.
The most recent sampling of 3,300 Chinese businesses showed:
- Hiring stopped accelerating due to a strong base of comparison
- Manufacturing orders also stopped accelerating
- Inventory accumulation "is too fast for comfort"
- Sales-price inflation is weaker than in the second quarter
- Wage gains have stopped accelerating
"None of these is genuinely alarming yet, and none would be out of place in a typical quarter," Miller and Scissors wrote. "But the first results after a CPC are not a typical quarter. If you expect a noticeable slowdown in 2018, the first post-Congress returns support those expectations."
At the 19th Party Congress, which marked the start of President Xi Jinping’s second five-year term, top leaders signaled less emphasis on pursuing economic growth at all costs. This month, at their main economic planning conclave to set priorities for 2018, they pledged to focus on "critical battles" against financial risk, pollution and poverty in coming years.
Here’s CBB’s breakdown of how support for the expansion may erode:
|Ebullience on "Party Congress put"||Only sure thing is no more CPC put|
|Politics require solid labor market||Hiring much less important politically|
|Serious anti-corruption drive||Drive no longer intense|
|Trump + Xi = best friends||Trade tension may disrupt markets|
|Weaker U.S. dollar takes pressure off the People’s Bank of China||U.S. tax cuts and rate hikes may spur unexpected dollar strength|
Evidence from the retail sector doesn’t support the government’s claims of a consumption boom, CBB said. While some large firms have strong sales and profitability improved this quarter, retail revenue growth finished last among major sectors, Miller and Scissors wrote.
"Retail’s performance is decidedly uninspiring," they said. "Revenue, capex, and hiring are inferior to manufacturing, while inventory growth is much higher."
Overall hiring held up and was generally in line with the prior quarter, with 48 percent of firms staffing up and 3 percent cutting workers. "Job growth remained stronger at state firms than private, regardless of company size," CBB’s survey found.
Inflation in wages, prices, and input costs were also roughly the same as in the prior quarter, and were moderately faster than last year, the report said. Profit growth improved.
The world’s second-largest economy has proved bears wrong this year, exceeding analyst estimates in the first and second quarters, and is now on pace for the first full-year acceleration in growth since 2010. Gross domestic product is seen growing 6.8 percent this year and 6.5 percent in 2018, according to economist estimates compiled by Bloomberg.
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