New numbers from China are worrying. Exports have fallen again in November, for the 5th consecutive month. Producer prices (a broad proxy for industrial activity and capacity) keeps falling – now in the 45th consecutive month. Growth in fiscal revenue has also slowed, another indicator of reduced economic activity.
New data on local government ‘land sales’ shows a slowdown of 1/3rd. I don’t quite know the significance of the slowdown in land sales, except that it is yet another symptom of a slowing economy. But I think there’s a significant fiscal implication from the slower land sales, but I need to familiarise myself more with the issue to provide more insight.
A lot of Chinese expansion fiscal policy (through infrastructure projects, primarily) is channeled through local governments and local governments play a strong role in driving growth across China. So any constricting of the fiscal space of local governments would necessarily mean less elbow room for them to spend on public investment projects at best, and stimulus at worst, at the local level.
The question is -are Chinese authorities able to use different policy levers to effectively push growth forward? Have traditional tools worked? Or exhausted? Are they able to adjust to the new reality of a rebalanced Chinese growth model?
Lets see how 2016 pans out…
This Bloomberg article has a good summary of the issues – ‘China’s Fiscal Squeeze Challenges Xi Goal – ‘http://www.bloomberg.com/news/articles/2015-12-09/china-s-fiscal-squeeze-challenges-xi-goal-as-slowdown-grinds-on
As one analyst has put it:
“The inability of monetary and fiscal policy stimulus measures to provide lasting solutions to China’s economic problems continues to make key economic reforms critical to the economic vision of the 13th Five Year Plan.”
For a previous blog on reasons for the bearish sentiments on Chinese growth, see here – https://thecurionomist.wordpress.com/2015/10/12/explaining-the-bearish-sentiments-on-chinas-growth-prospects/
Cover image courtesy telegraph.co.uk