Mandating top-down economic growth is not enough.
The Chinese government is getting nervous about the numbers and is insisting, top-down, on obtaining economic growth of 6.5% to 7% this year, one way or the other.
China’s cabinet has sent inspectors fanning out to provinces across the country to “keep economic growth within a reasonable range and ensure the main objectives and tasks of this year’s economic and social development will be completed,” according to Xinhua news agency, cited by Reuters. Because, apparently not all of China was playing along….
Some regions and government departments are not coordinating their policies well and some officials are lazy in their work, Xinhua said.
These inspectors, in addition to keeping up the pressure on growth, are also supposed to make sure that major policy measures are implemented along with “supply-side structural reforms” – cutting, for example, the massive and destructive overcapacity in the steel and coal sectors and the power generation sector. And these inspectors also supposed to support investment projects and innovations.
The government must have taking a good look at the rail freight data and is getting desperate, and it’s going to force official growth to happen, because the rail freight data, one of the key gauges of the goods producing economy, is dismal and contradicts the official growth story.
The National Development and Reform Commission (NDRC) said Monday that rail freight volume in July dropped 5.8% from a year ago, to 263 million tons of cargo. For the first seven months, rail freight volume plunged 7.3% year-over-year.
But 2015 was already a terrible year.
Volume of rail freight traffic, as measured by metric tons of cargo transported and the distance traveled in kilometers, had plunged 13.4% from 2014, to 2.38 trillion ton-kilometers, according to Statista. And in 2014, rail freight volume had fallen 5.8% from 2013:
Note how freight volume plateaued in 2011, 2012, and 2013 before entering the decline phase. With 2015 freight volume down nearly to the level of 2007, freight volume for 2016 is shaping up to be considerably lower still – and has a chance of setting a decade low.
That doesn’t speak of growth in the goods-producing sector, or even of stagnation. That speaks of an ongoing sharp multi-year decline with hues of depression in certain areas of the goods-producing economy.
While some areas of the goods-producing economy are still growing, such as the production of autos and automotive components, with heavily incentivized auto sales likely to hit another record this year, other areas are in a steep decline, exports are weak, the construction sector is wobbling….
These losses in the goods-producing economy are now to be overcome by gains in the service sector as part of the great transition, and the service sector is growing, but it’s going to have to hustle to get even close. So maybe it’s just easier for all these local officials who submit economic growth numbers to the central government to do a little fudging.
And manufacturing has another challenge: the Great Equalizer has arrived. Read… Why China’s Multi-Decade Manufacturing Miracle is Over
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Is this data credible? Seems that “adjusting” data is easier than actually trying to change production. Although I’ve noticed Chinese products seem to getting cheaper in the last year.
I’m no panda-hugger but isn’t the slowdown possibly a shift to a more service orientated economy? Or even possibly an increase in efficiencies as China maps out its production geography better?
Chinese wage increases are pricing more and more factories out of the market.
It’s unclear what China’s service economy actually is, let alone can it absorb the volume of employees leaving manufacturing.
Please, enough with the service economy nonsense. That sounds like a mainstream media sound byte.
Right on Michael. The only economy that works long term is a productive economy!
I’ve heard for years about a service based economy; then a post industrial economy; then an information based: then a consumption based…ad nausea. We are consumption based now. How is that working for us.
Folks, as any ol hayseed farmer can tell you, a vibrant and durable economy converts God given resources into a finished product be it industrial or agricultural. Maybe we need more hayseed farmers and less economists and analysts.
Your post reminds me of a wonderful thing I read decades ago – – so long ago I no longer remember the circumstance of my reading it.
I think I remember that it was written by a wise old German economist :
“We can’t make a living giving each other haircuts.”
Service economy indeed. You can’t eat what you don ‘t produce . . . .
Thank you. I am going to remember the hair cutting analogy and use it from now on.
And here we are stuck with all these mothballed locomotives and empty rail cars stashed everywhere around the country. Now China won’t be buying them on the cheap to build their “new silk road”.
I guess the price of scrap iron and copper will be depressed for quite some time. LOL
Don’t worry. The FED will buy it up sooner or later and create jobs by putting copper, iron and oil back in the ground. That should send the prices up again!
Another negative fundamental to add to the already huge pile of negative fundamentals, not only macro but micro to.
The writing on the wall has been crystal clear for anyone to read for some time now. We are headed for a global calamity, that will be socially all encompassing. The world has never been here before. This event is going to be unique. Historians will in future look back on this period with great interest.
When, what, how, and why the ignition point will be reached, is anyone’s guess. To what depth and degree of danger, is also an unknown. This has created a cacophony of opinions, studies, analysis, reports, etc. All are really just best guesses when it comes right down to the nitty gritty.
How to prepare for such an event, is again a matter of personal choice depending upon which scenario you follow. At my late stage of life, I prefer that to be one of being an observer. Good luck to all.
You are 1000% right.
My father was born in 1880; Spanish American War vet. He was near 60 when I was born and I am now well into my 70s. He was property rich until 1930. Then he was broke.
He told me stories of how hard it was in the great one. He told me there would be another one in my lifetime. He told me it would make his experience look like a lawn party. And he told me, that one would be accompanied by upheaval and vast SOCIAL CHANGE. Just what you said.
I am outlookingin with you brother.
Your father was a sage.
My father was born in 1909 and went through the “Dirty Thirties” as young man with a young family. Ours was a farm life. We all learned our frugal lessons from our parents. These lessons still stand the test of time, unfortunately the upcoming generations have not learned, or taken to heart these lessons and will find the going very tough. Some will not survive long. Good luck.
(Sitting on the porch watching the world go by)
No apocalypse, don’t invest your 401K building a bunker stuffed with a life-time supply of poptarts. China is going through a generational transition, whether they manage it properly is another matter, but they’ll muddle through.
Nicko I’m with you in sentiment, though would like to add that black swans are still somewhere in the flock. An issue I take very seriously is the spread of a deadly pandemic. Yes, we’ve made great strides in our public health and Yes, we are truly starting to get epidemiology. But China has had several scary outbreaks over the recent years that came frighteningly close to becoming a nightmare.
Disease can be a lot like earthquakes; they occur in cycles and often are preceded by little pre quakes. They are just as impossible to predict. So while it’s fashionable in my circles to poo pooh Zika etc as hype, an epidemic that starts in China is a real possibility. Just something to be aware of.
The “Black Death”. Originated in, CHINA.
But the superheroes from the Central Banks will save all of us from even a small downturn
I met an oldtimer in a little desert town in Utah, and when I asked him what kept the economy going there, he said, “We all steal from each other.”
I think he knew more about economics than I could ever guess.
With central banks around the globe buying up corporate stock at nosebleed prices, insider elites are no doubt quite pleased there’s someone remaining to sell to.
Rinse and repeat, no such thing as change.
Oh, Detroit has empty housing, 10,000 structures and 15% unemployment so let’s hire some insider special interest group to handle immigrating Syrian refugees.
They can fight it out in the streets?
In Feb. 2015 or a few months before the China stock crash- China expert Ann Stevenson-Yang estimated growth as flat to negative.
It is now obviously the latter.
How so many supposedly reputable MSM outlets a have been lulled into this six point something is a bit of a puzzle.
When the Chinese and the Brits were a having their sleep overs ( where according to the Queen ‘they were very rude’ the BBC was still parroting the 6.9 CCP party line.
I think I was temporarily suspended for commenting that they couldn’t possibly believe that. (I’m still suspended by the CBC after Browne, one of their writers, borrowed my comparison of China’s leap into capitalism with Mickey Mouse as the Sorcerer s Apprentice in Fantasia, which I posted on WS a few days before he used it)
Moving on, in a relatively undeveloped country like China, rail traffic is probably your best thermometer. Growth is obviously negative- maybe as much as 6.9!
And about this move from an industrial/ manufacturing economy- here the booby prize goes to Bloomberg. In a piece by one of their naive newbies, who no doubt they pay peanuts; she told us that China’s transition was underway with the new jobs being ‘baristas, barbers, and (my favorite) baby sitters.’
Yep; the collapse of coal,steel, concrete, aluminum (two TRILLION ) etc. will be replaced by the above.
Correct me if I am wrong but I think it was Stevenson-Yang herself who also came up with the dictum that China’s economy behaves according to a postulate to Heisenberg’s Uncertainty Principle: the closer you observe it, the more it changes its behavior.
In short each time analysts believe they have found a reliable way to give a reasonable estimate of China’s economic performances, the central planners in Beijing start fiddling with it to support the official narrative of >6% GDP growth.
I wonder if that drop in freight traffic is due to the Statistics Protection Team not having intervened yet or the situation being so bad even them had to concede defeat.
Outside of the four First Tier cities (Shanghai, Beijing, Shenzhen and Guangzhou), real estate is not doing well and is doing particularly bad in “fourth tier” cities, meaning cities outside the official three tiered system, cities where the bulk of the population lives. If housing slows down, shipments of rebar, cement, construction cranes etc by train slows down and a 5% or worse drop in traffic is coherent with the present situation, being partly offset by booming car sales due to ultra-generous incentives from Beijing.
Rail-car movements seem to be the only stat they haven’t completely mastered fixing YET
Electricity production/consumption used to be the mate to rail-car stats. They were both advised by a senior communist official long ago as the only real economic indicators in china.
Accurate timely or unadulterated Electricity stats have become impossible for the ordinary folk to get.
The main thing china excells at, is false propaganda, disseminated as real economic data.
I suspect they might have heard us: the Chinese PMI has suddenly and unexpectedly shot to a two years high.
And,as usual, people who should now better are swallowing bait, hook, line and sinker.
Ya- as D says for a while electricity use was the thermometer, then those numbers were manipulated. But rail is harder to manipulate, you don’t have to have access to a meter to count cars.
Ann’s outfit has people watching ports etc. to get a real look.
But of course China can’t fool with its export numbers because there’s someone at the other end.
BTW; if you haven’t watched her presentation to a bunch of suits in Feb. 2015 it’s really something. Just enter her name- her pic is on the youtube upload. At one point she describes an aluminum plant that tried to close but was forced to keep running so the State owned bank wouldn’t have to report a loss. She figures as flooded as everything is- aluminum may take the cake.
She’s cute too – I just hope she watches her step over there- she must pee-off the CCP- that reminds me she predicts ‘social unrest’
Ok. Here’s the Chinese business plan:
1) We got a lot of empty buildings. In fact, the countryside is littered with them.
2) We got a lot of factories that are, shall we say, at less than full capacity. In fact, the countryside is littered with them.
3) We’re gonna print money and manufacture all kinds of wonderful, best-in-the-world stuff (underwear, cheap t-shirts, socks, baseball caps…you get the idea), and we’re gonna store it in the empty buildings until Walmart comes to its senses and starts buying from us again.
4) And we’re gonna give everybody a raise. So there.
As long as the Central Banks, working together, can issue notes and “credits” to any account they want, there is no reason Stock Market prices can not keep going up.
With paper notes, digital entries, we can always keep the DOW up. Just credit the Primary Dealers with credits, as much as they want or need, and they can buy all they want from the market. Need $10 Trillion to keep the Dow up? Type in $10,000.000,000,000 to JPMorgan/Chase (the Rockefeller Bank) and they can purchase the stocks.
No problem. Relax. Kumbaya. As long as we are not held back by primitive, “barbaric” gold, we can be smarter than nature. Print and buy.
Numbers are probably off big time it must be much worst
I keep thinking that social unrest will EXPLODE in China.
Not soon, but this and everything else keeps increasing the pressure… (farm to city migration ending, the demographic bomb, male to female ratio, capital flight, middle class squeeze, etc.)
South Korea’s Hanjin Shipping Co said it would file for court receivership after losing the support of its banks.
Banks withdrew support for the world’s seventh-largest container carrier, saying a funding plan by its parent group was inadequate to tackle the firm’s $5 billion in debt.
Assuming these rail freight numbers are correct………
A big chunk in the drop of railroad traffic in the US is the drop in coal shipments for electric power, and for steel-making.
It would not be unreasonable (IMO) to assume that a drop in Chinese rail traffic was for the same reason. Especially considering the front page publicity that air pollution in China has received. Any data on how much electrical generation in China has converted to natural gas?
You’re correct about coal playing a role. I don’t have access to the numbers, so I don’t know how much of a role it is playing in the overall scheme of things.
For power generation, China has begun to replace coal with natural gas (its own production, pipeline imports, and LNG imports) and renewables. It’s a slow process (building pipelines, powerplants, etc.), but it does have an impact on coal over the years.
In the US, the shift was very sudden and brutal due to dispatch switching based on the low price of gas. If gas prices soar, power plants can shift power production back to coal-fired plants. This might not be possible in China, given the capacity constraints of its fleet of natgas power plants.
‘About 70 percent of China’s total energy consumption and nearly 80 percent of its electricity production come from coal, and its recent shift from being a historical net coal exporter to the world’s largest net coal importer took only three years.’
Coal for Electricity | ChinaFAQs
There wasn’t a date on above but I think it’s pretty recent.
China is the largest miner of coal as well as the largest importer.
China’s coal is low grade thermal coal- the imports are largely met coal used for steel.
Not too long ago (5 years?) China was building a new coal fired generating station every few weeks- with zero permits required.
I personally don’t think you will see any real change until there is a big event in Bejing, maybe a hundred thousand dead overnight as the air becomes literally unbreathable.