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It’s always good to have a plan. So China has a new five-year plan, its
13th. And the plan is to dial down China’s formerly white-hot economy to a
target of “medium-high economic growth” for the five years starting in 2016.
“The country will promote greater sophistication in its industrial sector
and significantly raise the contribution of consumption to economic growth,”
according to the Global
Times, a tabloid under the People’s Daily, which is the official
propaganda organ of the Communist Party. The goal is to double 2010 GDP and
per-capita income by 2020 and create “a moderately prosperous society.”
That’s all exciting stuff for the future. Meanwhile, there’s today.
And today, the Chinese economy isn’t exactly hopping, despite the official
GDP growth rate of 6.9% that no one believes, especially not the Chinese
leadership. So the People’s Bank of China cut its benchmark interest rates a
week ago – the sixth cut since November – to the lowest level in the data going back
two decades.
The leadership is trying to reform and restructure the economy away from
low-value cheap-labor manufacturing to the miraculous powers of consumerism,
implemented decades ago with such glorious success in the US and elsewhere.
So exports and imports have been plunging. But no big deal because retail and
services are going to make up for it. But other problems are cropping up….
“China’s steel demand evaporated at unprecedented speed as the nation’s
economic growth slowed,” Zhu Jimin, deputy head of the China Iron & Steel
Association, explained on Wednesday, according to Bloomberg.
Demand for steel, which is used in everything from buildings to cars, has
dropped by 8.7% in September from a year ago. Prices have crashed. And steel
mills are buckling under their debts even as they’re producing tons of red
ink in an ocean of overcapacity.
Car and truck sales, which have propelled China to the largest auto market
in the world with double-digit annual growth rates, started to skid this year
and actually declined over the summer, year-over-year.
Auto manufacturing, sales, and service are big employers. Manufacturing
plants and dealerships are still being constructed at breath-taking pace, at
a time when “overcapacity” has become the dark cloud over the industry.
To keep the boom from imploding, the frazzled government flooded the
market with incentives. It worked in halting the slide for now: in September,
sales picked up a little. But when government incentives are required to keep
sales from plunging, it’s going to get tough.
And suddenly there’s another data point…. The Wall
Street Journal:
The country’s two biggest oil companies offered a bleak picture of demand
from the world’s marginal consumer of the commodity in its latest quarterly
results, out Thursday. At Sinopec, the country’s biggest refiner, officially
known as China Petroleum & Chemical, total sales of refined products in
the third quarter dropped 3.4% in volume from a year before. That’s a marked
change from their 5.3% rise during the first half of the year.
Yet this dismal figure is bloated by Sinopec’s increasing exports of
refined products, a symptom of China’s excess refining capacity. Strip those
out and Sinopec’s domestic sales of gasoline, diesel and more were down 4.2%
in the September quarter. At PetroChina, the nation’s second-largest refiner,
product sales fell about 2% last quarter.
These are declines in volume, not revenues. They’re not a reflection
of any decline in prices. They’re a pure measure of demand for the fuel
that makes the vaunted consumer economy tick.
And oil bulls, desperately hoping that miraculously booming demand for oil
in China would somehow pull the world out of the oil bust, might have to
rejigger their scenarios.
Diesel, used mostly by trucks in China, is a gauge of transportation of
goods. Demand for diesel has been weak for the last two years – despite
protestations by the government of solid economic growth. Numerous reasons
have been cited for low shopping mall traffic, among them booming internet
sales. But all retail sales, wherever they occur, entail the transportation
of goods. And this should stimulate demand for diesel, you’d think.
And now demand for gasoline has started dropping too in September – and
perhaps even more indicative, so has demand for jet fuel!
OK, there is always the argument that vehicles and planes are getting more
efficient and require less fuel. But that plays out very slowly over many
years or decades, as old vehicles or planes are replaced by new ones. It has
no visible impact on a monthly or quarterly basis.
What remains is the notion that activity is declining, that
demand for transporting goods is falling, that people apparently are driving
less. And now they’re also flying less? This would be a drastic change in an
economy that has soared at mindboggling speeds year after year, but now is
apparently out of fuel and in serious hard-landing mode, with the pilots
flailing about to keep it from crashing.
And just when you thought it couldn’t get worse. Read… China
Containerized Freight Index Collapses to Worst Level Ever
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