China’s transition to consumer-led growth is backsliding: Beige Book

BEIJING — China’s economic rebalancing to consumer-led growth is reversing, according to the China Beige Book (CBB), which said third-quarter growth engines are exclusively in the “old economy”.

Manufacturing, property and commodities strengthened while retail, services and transportation — crucial parts of the “new economy” — all saw weaker results, the private survey by CBB International shows.

Rebalancing has been a key goal for China’s policymakers, who are seeking more sustainable growth centred around consumers instead of factories and other old drivers.

Manufacturing posted its fastest expansion nationally, with 53 per cent of companies seeing revenue gains, up 3 per cent from a year earlier, the quarterly survey of more than 3,100 firms showed.

While a government infrastructure building spree and housing boom have given a much needed boost to “old economy” firms, from steel mills to cement makers, the CBB noted foreign orders had also improved.

But “new economy” sectors showed weakness both quarter-on-quarter and year-on-year, with cash flow and profits deteriorating, leaving the country on uneven footing. Services slowed and retail firms experienced one of their weakest performances in the history of the survey as e-commerce firms gobbled up more market share.

“The chief problem in China economic analysis remains the unwillingness to look behind dubious headline data,” authors Leland Miller and Derek Scissors wrote in a note accompanying the report.

“High-profile indicators such as GDP and the PMIs this quarter will rubber stamp the government’s recovery narrative, but only those with nothing on the line should accept this at face value.”

Official data for August raised hopes the economy was stabilising and perhaps even picking up, with industrial output, retail sales and property investment all quickening more than expected, while industrial profits grew at the strongest pace in three years.

But while the property sector showed another quarter of strong growth, there are signs that China’s real estate boom is starting to stutter, the CBB report said.

Property sales revenue is uneven across the country, while companies’ cash flow weakened, prompting a spree of new borrowing that will likely add to worries about rapidly rising debt levels. Moreover, more and more cities are tightening restrictions on home purchases as prices soar.

In the services sector, growth weakened in every area aside from hospitality. Retailers with only brick-and-mortar stores saw no net revenue growth in the third quarter.

“Struggling retail and a property bubble are not the kind of stability many are touting,” the report said.

Separately, the China Academy of Social Sciences, a top think-tank that advises the government, has said that China’s economy is expected to grow at an annual 6.6 per cent in the fourth quarter and post overall growth of 6.7 per cent for the full year.

The predictions by CASS are in line with the government’s own full-year forecasts of 6.5-7 per cent growth.

“Economic growth in the fourth quarter is likely to fall slightly but within a normal and stable range,” the newspaper quoted Mr Wang Hongju, a senior researcher at CASS, as saying.

“We should, as long as there’s stable local demand, continue supply-side reform, strengthen the sustainability of economic development, and resolve hidden risks in the economy to keep the economy going at a reasonable pace,” he said. Agencies