According to Fathom’s China Momentum Indicator (CMI), China’s economy grew by 6.2% in the twelve months to December, up slightly from a downwardly revised and near two-year low of 6.1% in November.
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The data were more of a mixed bag than in recent months, but the bulk of ‘old-model’ sub-components included within our CMI firmed, in line with our view that China is doubling down. Indeed, while we agree with mainstream media that China’s economy would slow if it were rebalancing, we find very little evidence to suggest that China’s policymakers are reorientating the economy toward new-model growth, or that the recent slowdown in growth is a consequence of that effort.
A glaring example of China’s reliance on its traditional growth model, as covered in a post several weeks ago, is the time taken to complete the construction of a residential property in China, which according to Fathom’s proprietary measure is now a staggering seven years. This reflects both the mothballing of properties in the construction phase and a reluctance to declare them as ‘vacant’ even when they are complete.
As illustrated in the second chart below, credit growth may also have bottomed out, a consequence of the latest twist in China’s love-hate relationship with shadow financing. Indeed, cuts in the reserve ratio requirement, favourable rhetoric surrounding credit standards, and cash injections into the financial market are all in stark contrast to the tightening measures enacted in 2017.
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But despite doubling down in a bid to cushion the economy, both labour strikes and internet searches for the phrase “economic recession” are on the up, and are positively correlated. The fact that both are rising indicates that solid growth in aggregate might be masking a lot of churn in the labour market as China’s growth model reorientates.
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