27°C | Light rain
Jan 18, 2012
All the attention yesterday was focused on the modest slowdown in the mainland's economic growth rate towards the end of last year.
But dig a little deeper and there was far more interesting information to be found in the slew of economic data released by Beijing.
Despite the reams of comment and analysis devoted to the mainland's headline figure, in truth the moderation in growth to an 8.9 per cent rate in the fourth quarter of last year from 9.1 per cent in the third quarter doesn't tell us much.
Some slowdown in the year-on-year numbers was only to be expected given the wilting demand for China's exports in Europe and the United States, coupled with Beijing's relatively tight monetary stance and the government's determination to bring down property prices.
But don't read too much into it. The authorities have already begun easing policy, and according to the economists at Goldman Sachs, growth actually accelerated towards the end of the year on a quarter-on-quarter basis, rising to an annualised 9.1 per cent rate from 8.5 per cent in the previous quarter.
In other words, the numbers released yesterday don't tell us whether the mainland economy is slowing or not.
But they do tell us other things. For example, they tell us there is no sign that the long-awaited rebalancing of the economy away from investment and towards private consumption is under way.
That might sound like a strange assertion, given that we are constantly being bombarded by stories of slowing construction and of booming consumer demand.
What's more, China's current account surplus with the rest of the world - widely regarded as a key indicator of excessive domestic savings and weak consumer demand - has dropped steeply since the start of the global financial crisis.
As the first chart shows, the surplus has contracted from a massive 10.5 per cent of gross domestic product in mid-2007 to less than 2 per cent in the last quarter of 2011.
But although its external imbalances have shrunk, yesterday's data indicates that the mainland economy's internal distortions are as pronounced as ever.
It's true that private consumption is growing rapidly. Retail sales grew by 17 per cent last year, and growth in overall consumption, from both the government and households, accounted for a higher share of the mainland's total growth than at any time in the past 10 years.
But investment grew at an even faster rate. Investment in fixed assets expanded by 24 per cent in 2011. And gross capital formation powered a larger share of the economy's growth than consumption.
As a result, the economy became even more skewed towards investment. Extrapolating from yesterday's figures, we can estimate that net exports made up 2.5 per cent of the mainland's GDP last year, while domestic consumption contributed 48 per cent, up a touch from 2010. Investment, however, made up a whopping 49.4 per cent of economic output; an all-time record (see the second chart).
Whether this increasing imbalance is a problem is debatable. Some economists argue that the weight of investment in the economy is no problem. They point out that the mainland is a developing economy with a relatively low capital stock, which badly needs better infrastructure and housing.
Others are less sanguine. They worry that the unprecedented level of investment means that capital is being misallocated on a colossal scale to thousands upon thousands of wasteful projects. Many, they say, will never generate an economic return, which will lead to a massive debt crisis and a steep drop in growth rates down the road.
Only time will tell which group is right. But meanwhile we can conclude that the mainland remains heavily reliant on investment to generate its growth, and that the rebalancing towards consumption which Beijing has been promising for the past five years has yet to begin.
tom.holland@scmp.com Copyright (c) 2012. South China Morning Post Publishers Ltd. All rights reserved.