China’s economy: Strong but for how long?

Posted: July 15, 2016 in economy
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THIS ought to be an obvious point but it bears stating at the outset, to be as clear as possible: China’s growth remains strong. Its economy expanded 6.7% year-on-year in the second quarter, according to data published today, exactly level with its first-quarter pace. Coming off last year’s stockmarket crash and the surprise depreciation of the yuan, many had expected the economy to swoon this year. Willem Buiter, chief economist of Citigroup, had even talked about China falling into a recession in mid-2016 (i.e. right about now). This newspaper had been more upbeat about its growth prospects for this year, if not over the longer term. So far at least, the economy is holding up well.The veracity of the data is, as ever, open to question. There has long been evidence that the government smooths out growth trends over time. Last year, it appeared to be playing games with the GDP deflator, in effect depicting real growth as stronger than it actually was. But a big jump in the deflator in the second quarter (to 1.69% from -0.45% in the final quarter last year) is more closely aligned with price movements in the economy, suggesting that reported growth now is probably a little closer to reality than it was last year. Moreover, there are a host of alternative indicators that support this view: infrastructure investment has surged, the property market has had a strong first half …

via Economic Crisis


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