September 9, 2019

Chart of the Week: China’s weak growth is not a consequence of rebalancing

by Fathom Consulting.

Fathom’s measure of economic activity in China, the China Momentum Indicator (CMI), posted just 4.4% in July, suggesting that growth is a third weaker than official data imply.

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Contrary to some, we do not believe that this slowdown reflects a strategic decision by China to rebalance the economy at a time when any negative impact on growth can be blamed on US trade sanctions. Indeed, it is happening despite of a lack of ‘rebalancing’. Recent measures of consumer appetite reinforce the message. Real retail sales growth — one of the ten components of our CMI 2.0 — fell to a record low in April 2019. This point is further supported by Fathom’s China Growth Strategy (CGS) indicator — a measure of old- versus new-model growth. The assumption behind the CGS and its subcomponents is that new-model growth should be driven less by credit and investment, with the consumer picking up the slack as the economy tilts towards more advanced-model growth. The CGS indicator has shown that progress on both the credit and investment front waned last year; evidence of a more consumer-driven economy was also absent. So long as China continues to prioritise growth over reform, meaningful rebalancing remains a distant prospect.

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