Mixed Economic Signals From China

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October 21, 2014 by Bill Johnson


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HONG KONG — Markets around the world have been jolted by fears that slowing growth and deflationary pressures in Europe, Japan and other major economies could derail the United States. But the health of China, for decades an engine of growth, has emerged as one of the most significant wild cards in the global economy.

It is hard to be certain just exactly how the Chinese economy is faring, given mixed signals in the data.

Chinese inflation is at its weakest levels in nearly five years. Commodity prices are plunging. New home sales are declining. Foreign investment is contracting.

The overall economy, though, continues to chug along at a steady, albeit more modest, pace. China’s gross domestic product increased by 7.3 percent in the third quarter, compared with 7.5 percent in the previous quarter. While that was the lowest quarterly growth since the depths of the financial crisis in 2009, the rate remains the envy of major economies. The economy also continues adding jobs at a good clip, and the currency is one of very few that are still rising against the dollar.

“The question or problem we are all facing at the moment is, ‘What is right picture for the economy as a whole?’ ” said Louis Kuijs, the chief China economist at the Royal Bank of Scotland in Hong Kong. “It’s complicated by negative forces that show up very strongly in industry but not in the service sector.”

Making sense of China’s economic health is challenging because the slowdown is partly by design.

The Communist leadership has pledged to reduce China’s dependence on credit-fueled growth and investment, to instead emphasize domestic consumption. It is a risky proposal, and leaders have signaled a willingness to live with slower growth, provided employment holds up and systemic risks are contained.

One figure that Chinese leaders study closely is the number of new jobs. Li Keqiang, China’s prime minister, boasted in a speech at a World Economic Forum meeting last month that nearly 10 million urban jobs had been created in the first eight months of the year, up slightly from a year ago. As a result, he said, he would not mind if the growth of the gross domestic product fell short of this year’s official target of 7.5 percent.

“An important goal of maintaining stable growth is to ensure employment, and the floor of the proper range is to ensure relatively adequate employment,” he said at the meeting in Tianjin.

But even in the jobs figures, broad disparities exist across China. Employment has grown solidly in the services sector nearly every month in the last five years, according to the purchasing managers index compiled by HSBC and Markit. By contrast, manufacturing employment, which generally expanded from 2009 through 2011, has mostly contracted since.

At an employment fair for the medical appliance industry at a government-run career center near the Lama Temple in Beijing last week, more than a hundred job seekers bantered with recruiters and weighed their options. A 42-year-old man who gave only his surname, Mr. Lin, was applying for a job at Beijing Niubao Technology, a chemical equipment maker.

With 20 years of experience in a specialized industry, Mr. Lin expressed confidence about his prospects despite the overall outlook in the sector. “Manufacturing isn’t doing so great in the past few years, but I think chemical equipment is still doing relatively O.K.,” he said.

That somewhat positive outlook is a sharp contrast to most traditional industries. “We didn’t have any new recruits this year,” Huang Xinqun, 48, a manager at a large ocean-shipping company, said last week. “Usually when the manufacturing business is not doing so well, it would be directly reflected on us,” he said.

“We’re like a signal post on how the economy is doing,” Mr. Huang said. “If companies don’t have that many orders and products to transport, then we don’t have as much work.”

Read more: Mixed Economic Signals From China

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