Power, steel, cement suggest China’s economy not so buoyant

18 February 2014

The big debate about how fast China’s economy will grow this year can find some answers in the real world, where signs suggest the growth giant is slowly but surely losing its fizz.

From falling power consumption to record-low steel prices, a clutch of indicators show sluggish investment and domestic demand are weighing on China’s $9.4-trillion economy, a worrying sign for some economists who are cutting their GDP forecasts for 2014 – which is unusual so early in the year.

Rising interest rates and restrictions that stop wasteful spending by Chinese governments have depressed investment to at least a decade-low, making it perhaps the single biggest drag on the world’s number 2 economy.

The implication is big, especially since investment accounted for over half of China’s 7.7% economic growth last year. Experts believe growth may sag in coming months towards 7%, a rate bound to disconcert investors and even some policymakers in Beijing worried that the economy is braking too hard.

“It will be a few more months before we hit the bottom,” said Frederic Neumann, an HSBC economist in Hong Kong. “It may take more aggressive measures from the government to turn things around.”

Financial markets long accustomed to China’s stellar, double-digit growth rates of the past are predictably skittish, a factor that contributed to the emerging markets selloff this year.

A confusing run of official Chinese data has provided little clarity about the future, making it more difficult to gauge whether Beijing’s plan to gear the economy more towards consumption and services is working. The unpredictability has left forecasts for growth this year wide ranging from 7% to above 8%.

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