China's growth of 7.6 per cent for the second quarter is a puzzle. On one hand, it doesn't sound so bad, and is a whisper above the 7.5 per cent politicians are targeting for the year. Yet signs, both anecdotal and official, abound that things are worse than the number would suggest. Growth is still there, but maybe in the wrong places.
Consider some recent industrial data. Electricity production was flat, year on year. That’s often seen as a proxy for real economic activity. Energy imports tell a mixed picture - oil imports were up from January to May, but domestic crude production fell. Coal imports have risen rapidly, but so have stockpiles. And a quarter of the aluminium sector is now on government life-support, according to consultancy AZ China.
Arguably, what matters more to China's leaders than GDP statistics is employment. Official data shows that the job market is tight. But there too, the numbers are hard to square. They exclude some 150 million migrant workers - presumably among the first to get laid off in a downturn. And producer surveys show both manufacturing and services are barely adding jobs at all.
The anecdotal evidence is grim too. Stories abound like that of Zhejiang Zhongjiang, a conglomerate based in Zhejiang province. It is flirting with bankruptcy, and owes some three billion yuan ($470 million) to China Construction Bank, according to financial magazine Caixin.
Why the discrepancy? The answer might lie with the two sectors where things are going better than hoped. One is the banks. Their lending of 920 billion yuan ($144 billion) in June beat expectations, though that appears to have been driven by short-term loans - in other words, lending that's unlikely to go into long-term investments, and has every chance of keeping stressed borrowers alive.
Then there’s the property sector - home to many of those stressed borrowers. Real estate data shows a spike in investment into residential property of 35 per cent between May and June, marking the highest absolute level of monthly investment since 2010, presumably as bank lending enables riskier projects to crank back up. That may be growth, but it's hardly the beginning of a balanced recovery.
