In an article optimistically entitled “China Echoes 2009 Stimulus with Railway Spending Boost,” Bloomberg News actually, when one reads the small print, suggests exactly the opposite.
Anyone expecting the recently announced increases in spending (such as that for railways) to be the forerunner of a dramatic surge in investment-led growth are almost certainly going to be disappointed.
Excitement in some quarters was stoked by a document put out by the National Development and Reform Commission’s Anhui branch that indicates a 9 percent spending increase is intended over and above the previous plan of 411.3 billion yuan.
Spending was 148.7 billion yuan in the first half, but railway spending is nearly always more in the second half of the year than the first and according to Yao Wei, a Hong Kong-based economist for Societe Generale SA, railway spending in 2012 will remain below 2011’s level.
By comparison, in 2009, spending of 600.6 billion yuan on railway infrastructure was part of stimulus that spanned low-cost housing, roads and earthquake reconstruction work. But in 2010, rail spending alone exceeded 700 billion yuan. Last year, the total was 461 billion yuan.
Meanwhile, foreign direct investment dropped 6.9 percent in June from a year earlier, and the IMF has downgraded its forecast to 8 percent for this year and 8.5 percent for next year, respectively down 0.2 percent and 0.3 percent since just three months ago.
Even this is likely to be revised as growth in the second quarter, at 7.6 percent, again came in under 8 percent, the lowest since 2009. With exports down due to stagnation in China’s largest export markets such as Europe and the prospect of more than 2,000 Hong Kong-owned factories in Guangdong having to close this year, the only bright spot in the Chinese economy is domestic consumption.
Not that consumers are brimming with confidence, but retail sales have held up better than other sectors and government initiatives to support sales of low-energy appliances and fuel efficient cars are encouraging consumers to keep spending. That and the rising level of disposable income — wage rates are rising 15 percent per year on average, fueling both spending and a rapid rise in wealth management investment products as those with money continue to shun the poorly performing stock market, widely seen as a bastion of insider trading, according to the FT.
It would seem that Beijing is largely content with a lower level of growth, if that keeps inflation under control and continues to gradually steer the economy towards more reliance in internal consumption and less on exports or fixed-asset investment.
The takeaway for metals markets is China is not likely to ride to the rescue of metals prices by ramping up imports, but quite the reverse could happen: we could be in for a prolonged period of more stable metals consumption by the world’s largest consumer.