Good News And Not So Good News On China

Kenneth Rapoza, Contributor

Covering Brazil, Russia, India & China.

I know, everybody loves the Apocalypse.  But sadly, the Chinese economy is not heading for a hard landing, with second quarter GDP growth coming in at 7.6 percent, far above the 7 percent and under considered by economists to constitute the start of a China crash.
But while China’s economy is firing on, let’s say, all two cylinders instead of all four, there’s a mix of good news and bad news regarding the world’s No. 2 economy.
The headline macro data released Friday showed the second quarter growth was less than the first, which came in at 8.1 percent. That was to be expected, though the numbers were a little under consensus estimates of 7.7 percent for 2Q.  Then there’s China’s industrial production (IP) figures. Growth slowed a smidgen to 9.5 percent in June from 9.6 percent in May, lower than the market consensus yet again, which was 9.8 percent. Fixed asset investment (FAI) growth for the first half rose surprisingly to 20.4 percent year over year from 20.1 percent in the first five months, as the Chinese government does what it can to stimulate the economy as Europe’s woes continue to pack a punch on China exporters.

Retail sales growth for June slowed slightly to 13.7 percent, better than the market consensus 13.4 percent.
Growth in approved investment for new projects rose by 23.2 percent in June from 22 percent in May, which suggests public investment growth will pick up further in the coming months. Second, property market transactions rose strongly, which should help to mitigate the downside risks of property investments in the second half. Third, new loans and money supply growth — what bankers are putting into the market through short term debt — were both upside surprises. Loans are on the upswing.
This data release will reinforce the view among some major investment banks that GDP growth bottomed in the second quarter and will rebound, albeit slowly, in the second half.
Although everyone loves a rip-roaring good time with end-timers, the market has been overly pessimistic on China’s growth outlook. This is not a Western democracy.
“We believe the government is becoming less tolerant of an economic slowdown,” said Zhiwei Zhang, an analyst at Nomura Securities in Hong Kong.  The government of Beijing changes hands next year. The last thing they want is to shift gears when the economy is going to hell in a handbasket.  They won’t allow it.  Zhang said he believes Beijing policy makers will be supportive of growth going forward.
“We are approaching the important Communist Party meeting in October where the leadership transition is expected to take place. We expect the pace of policy easing to accelerate,” he said.
On Friday, Nomura said that it revisted the China 2012 GDP forecast down to 8.2 percent from 8.4 percent and its 2013 GDP forecast down to 7.9 percent from 8.2 percent.