China's economy is worse than Beijing admits and demand is plunging for the first time on record
Yesterday Daiwa Capital Markets economist released their own sceptical take on China's official figures. Though the headline statistics suggest growth of 7% annualised in the first three months of the year, they noted that power output was completely flat and imports from the country's commodity suppliers were plunging.
And Lombard Street Research (LSR) economist Diana Choyleva has just released her latest figures on the world's biggest developing economy, and they're similarly ugly. Domestic demand is falling.
And demand isn't just plunging at the fastest rate on record. It's plunging for the only time on record. Even in the midst of the global financial crisis, when China's trading partners were slashing back their purchases, domestic demand didn't actually fall.
Take a look:
Lombard Street Research
The year-on-year figure is at its lowest level in at least 10 years too.
LSR's data only goes back 10 years, but if it went back 25 years it would likely tell the same story: China's official growth figures have showed expansion above 6% since the early 1990s - and that's included a slowdown in 1999. Average annual growth has been closer to 10%.
LSR's analysts use an alternative calculation of China's GDP data which shows a negative figure.
So if the current quarter is as bad as Q1, the country would actually be in a technical recession (two quarters of negative growth):
Lombard Street Research
Here's LSR's Diana Choyleva on the negative trend:
Perversely, communist Beijing has made a conscious policy choice to go for "creative destruction", although we have yet to see the extent of corporate defaults. Sceptics of China's ability to rebalance without a major crisis are right to worry, as the task is fraught with uncertainty...
Much weaker growth has decimated profits, but unemployment hasn't risen meaningfully. This is partly thanks to demographics. The migrant age group is shrinking, boosting wages and keeping employment up despite a dire corporate performance. Moreover, while large parts of industry are moribund, the service sector is doing better, in particular internet-based firms. Even so, the needed investment correction has just begun, so unemployment is likely to rise. Labour market weakness and the potential for social unrest this creates will be the real domestic test of the authorities' resolve.