Is China finally admitting it is in an economic slow down?

15th September 2014 by The Harried House Hunter

This year has been one up to now where the official data coming out of China has rather neatly fitted the objectives of the Chinese government. The official target of an economic growth rate of 7.5% in 2014 has been followed by official GDP (Gross Domestic Product) numbers that have gone 7.4% in the first quarter and then 7.5% in the second. This does represent a slightly slower rate than was seen in 2013 but makes it look as if the Chinese economy continues to power on almost regardless of what happens elsewhere. However from time to time numbers and data emerge which challenge such a state of play and recently we have begun to see them again.

The price of Iron Ore

This has been falling overall since last 2013 but the decline has accelerated recently.  The Sydney Morning Herald put it like this over the weekend.

In a consistent slide since December 4, 2013, the benchmark iron ore price has fallen 41 per cent to reach the point where several of Australia’s junior exporters are barely break-even propositions.

Whilst there has been an increase in supply it also tells us that demand from China has been a factor in the price falls.

weakness in the Chinese real estate and steel sectors

iron ore deliveries to China have been lower in the past two months than they were in the June quarter.

So we see that Chinese demand appears to have thinned out for what is a staple commodity for its economy. There are of course plenty of implications for Australia (hence its name of the South China Territories) in this too as reflected by the way that the Aussie Dollar fell through 90 US Cents this morning. As you can imagine we can expect plenty of end of the iron age headlines if this carries on and we fall futher from the current US $82 per tonne.

Also if we stick with commodity markets and possible signals there has also been a decline in the price of crude oil which I discussed last Thursday. This has dipped below the US $97 level for a barrel of Brent Crude Oil earlier today. There are plenty of other influences on the oil price but we are left wondering if the falls in the oil price are associated with a slow down in China too.


This is another way of taking a look at the Chinese economy via the shipping indices. Here the Baltic Dry Index has been having a rough patch. It has improved from the lows of this summer but is 28% below where it was at this time last year. Annual comparisons will be harder as September progresses as this time last year it was in the middle of quite a surge which pushed it above 2000 compared to 1181 now.

However the Harpex index is more positive although it is a long way below the peaks of a few years ago.

Industrial production growth slumps

The numbers for August have created something of a stir.

In August 2014, the total value added of the industrial enterprises above designated size was up by 6.9 percent year-on-year (the following growth rates of value added are real growth rates, after deducting price factors), 2.1 percentage points lower than that in July 2014.

From January to August, the total value added of the industrial enterprises above designated size was up by 8.5 percent.

Compared to a sequence of months where industrial production increased by around 9% this indicates quite a possible slow down which is reinforced by the fact that a year ago we were observing more than 10% growth.

This number particularly resonates because China is much more of an industrial nation than we have become in the western world. Perhaps particularly symbolic has been the fall in the rate of growth of steel production from 15.6% in August 2013 to 2.4% this August.

Electricity production

This has been a number used often to try to get the truth about what is happening in the Chinese economy with all sorts of unofficial estimates being calculated and circulated. This time around it is the official numbers which have shown a decline as they showed a fall of 2.2% in electricity production in August.

The Chinese statistics agency did show that they can copy the tactics of the evil decadent western imperialists. Via Google Translate.

low temperatures affect the production of electricity and related industries.

Yes, if all else fails blame the weather!

What about inflation?

As discussed above commodity prices are providing a disinflationary push around the world right now. This will give another push to China’s producer prices which have been falling for over two years now.

In August 2014, Producer Price Index (PPI) for manufactured goods decreased 1.2 percent year-on-year, and decreased 0.2 percent month-on-month. The purchasing price index for manufactured goods went down by 1.4 percent year-on-year, and decreased 0.1 percent month-on-month.

This has had the effect of reducing consumer inflation in China.

In August, the consumer price index (CPI) went up by 2.0 percent year-on-year.

Actually a factor keeping it at such a level was a 5.1% rise in the price of pork but quite a few other categories fell in August.

the month-on-month prices for transportation and communication, clothing, recreation, education, culture articles and services, tobacco and liquor decreased 0.3, 0.2, 0.2 and 0.1 percent respectively;

This is rather different to the 6% plus that consumer inflation in China pushed to in 2011. It is also below the inflation target of 3.5%.

The Yuan

In the early part of 2014 the Chinese authorities allowed the Yuan  to weaken. However in June that phase ended and the Yuan has strengthened from 6.25 to the US Dollar to 6.14 now. It is an interesting change of strategy against a US Dollar which itself has been strong over this period. One impact it will have is that the disinflationary pressures discussed above will be given another nudge.


We are left with the thought that a slow down in the Chinese economy appears to be happening. On that basis one could easily expect more easing although the authorities would first have to change the official message. From the People’s Bank of China monetary report.

In the first half of 2014, performance of the Chinese economy was stable. Economic growth, new jobs in the urban areas, and general price levels were all within a reasonable range and the economic structure experienced positive changes.

Meanwhile there is plenty on news from elsewhere in China. For example they have just introduced a pedestrian lane in Chongqing for those who are texting on a mobile phone. There are times central London could do with some of those! Also China is displaying a very neutral stance on the issue of Scottish indepence by saying that the only change for it would be that it would get an extra ambassador.

Meanwhile we wonder what the impact of falling iron ore prices will be on the Chinese shadow banking sector which has collateralised iron ore.




14 thoughts on “Is China finally admitting it is in an economic slow down?”

  1. Andy Zarse says:

    Hi Shaun,

    It’s long been a concern of mine that China seems to be living its own dream. Last night I watched the excellent ELO concert. Jeff Lynne is a musical perfectionist but I think he might also have some economic insight with the lyrics of Livin’ Thing..

    Sailin’ away on the crest of a wave
    It’s like magic
    Oh, rollin’ and ridin’ and slippin’ and slidin’
    It’s magic
    And you, and your sweet desire
    You took me, ohh, higher and higher, baby

    I’m takin’ a dive
    Making believe this is what you’ve conceived
    From your worst day, I’m takin’ a dive
    Oh, moving in line when you look back in time
    To the first day, I’m takin’, I’m takin’

    And you and your sweet desire
    You took me (Don’t you do it, don’t you do it), ohh, higher and higher baby

    It’s a livin’ thing
    It’s a terrible thing to lose
    It’s a given thing
    What a terrible thing to lose

    And I’m takin’ a dive, ah the slide, hey

    Takin’ a dive ’cause you can’t halt the slide
    Floating downstream, I’m takin a dive
    Ah, so let her go don’t start spoiling the show
    It’s a bad dream, I’m takin’, I’m takin’

    Still, when you look at the plights of Italy, Russia and Japan, all of which you outlined very recently then we might be better picking ELO’s All Over The World…

    1. Anonymous says:

      Hi Andy

      I am a bit annoyed I missed that as there was a Jeff Lynne night on BBC 4 a little while back which I enjoyed and reminded me that he wrote some very good songs. Rather ironically ” I can’t get it out of my head” was in my head for a while….

      Apparently in more recent years ELO had a song called “endless lies”…

  2. Londoner says:

    It all makes no sense to me. How can the world continue riding the crest of an imaginary wave?

    1. forbin says:

      because the alternative is too horrid to contemplate

      but will happen anyway as we measure unicorns and fairy dust….


  3. Paul C says:

    Hi Shaun,
    It is good to see you having a stab at China. Managing flat and falling indicies is a very different challenge, maybe a skill that the UK and western Europe could export to China?
    I think that their effort has been to reduce the shock of falls but as ever that kind of behaviour stores up issues for tomorrow and potentially a greater surprise in future. I believe that quite a few financial products are linked to basic commodities so as the iron and steel market cool there coud be casualties.
    They probably need to stoke up domestic demand that is not property related, I’d go for healthcare and caring for the elderly.

    1. Anonymous says:

      Hi Paul C

      The leadership in China must be considering a stimulus package I agree. On the monetary side they have tried cuts in reserve ratios but in my opinion they tend to under-perform as they did when we in the west tried them, so you may be right.

      We could yet see an interest-rate cut there.

  4. Forbin says:

    hah! 6.9% growth is what makes Western pollies drool !!

    perhaps they should add hookers and coke to the figure to get back to 10% 😉

    still 6.9% still means they are doing well ……..

    Can the Earth supply enough to get 1 billion more ” American lifestyles ” going ?

    unlikely it seems , what can’t go on , won’t


    1. Critic Al Rick says:

      So-called ‘real’ Growth, for those that can or cannot think, represents an acceleration in the rate at which mankind is pioneering its own extinction. So much for so-called academic wisdom.

    2. Anonymous says:

      Hi Forbin

      You may be amused to learn that one of the articles I read earlier (in the Wall Street Journal if I remember correctly) was suggesting that China may consider revising its GDP definitions. If you need to do that at its level of growth then as you point out where does that leave us?

    3. Noo 2 Economics says:

      Can the Earth supply enough to get 1 billion more ” American lifestyles ” going ?

      But do the Chinese want American life styles?

  5. baldand says:

    Great column, Shaun. Another evidence of the slowdown you write about is the China Newly Built Housing Price Index, which increased by 2.5% annually in July 2014, the slowest rate of increase in 17 months. In November and December 2013 the index hit an all time peak inflation rate of 9.9%.

    1. Anonymous says:

      Hi Andrew and thank, you for the numbers. If we add in the consumer and producer inflation numbers the People’s Bank of China must be considering an interest-rate cut.

  6. Noo 2 Economics says:

    “Is China finally admitting it is in an economic slow down?”

    I seem to remember reading an IMF country report earlier this year where it was agreed that the Chinese authorities must slow down the overheating property market whilst keeping an eye on the shadow banking system which was causing concern.

    The Chinese authorities stated their view was that sustainable future growth was in the 7% – 7.5% pa range, so I’m not sure they have anything to admit to, other than, with the exception of the shadow banking system, where to my mind risks are increasing, their strategy is working??

    1. Anonymous says:

      Hi Noo2

      It depends on whether this is a downwards “blip” in industrial production or the beginning of a new lower trend. If the former then events fit the path you suggest. However some more industrial production figures like these and the numbers deteriorate with the Bloomberg GDP growth index being of the order of 6.3%.

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