China's Economy: Steady As She Goes?

Shanghai. The economy is shrinking, but the government says not to worry. ?The second half will grow "steadily". ?That's better than growing weaker. But the government in this case is more bullish than the market, which expects a weaker second half. (Photo credit: Wikipedia)

The Chinese economy will remain ?steady? in the second half of the year, Communist Party leadership said on Tuesday. If you believe them.

Despite what they called ?extremely complicated domestic and international conditions?, the key word here was ?steady? rather than ?weaker?. ?That puts the Chinese government a head of the market, which is a bit more bearish on China overall.

By now, most analysts are forecasting weaker growth in the second half. Zhiwei Zhang, a senior economist for Nomura Securities in Hong Kong, is forecasting a 30% chance that growth will fall under 7%, the first time since the crisis of ?08.

One of the bigger problems on the mainland is excess capacity at Chinese factories. Whether it is in the property sector or automotive or solar panels, China built up too much, too fast, and doesn?t have the customer base to soak up supply. With Europe still growing under 1%, or in recession in some countries, China is counting on U.S. demand and local demand. Neither have been enough to solve China?s problems with excess capacity.

The government said over the weekend that it was considering plans to eliminate outdated industrial production capacity, especially in the steel, cement, and shipbuilding sectors.

To ease those problems in affected industries, the Ministry of Industry recently told around 1,400 companies in 19 sectors to eliminate outdated production capacity by September and eliminate excess capacity by the end of the year.

Local Local investors sold out of Chinese stocks on Monday, reacting to discouraging news about first-half earnings growth and Beijing beating the drums over maxed out credit at the municipal level. Investors are worried that states have overspent and will either default, spend less, or spend nothing in the months ahead, thus slowing the economy even more.

The Shanghai Composite Index fell 1.72% to 1,976.31 points, the largest single-day fall since July 8.

In New York, the popularly traded iShares FTSE China Xinhua 25 (FXI) exchange traded fund is marginally higher on Tuesday, up just 0.3%.

In WSJ?s China Real Time report on Monday, former World Bank chief economist Justin Yifu Lin said something that not even the Chinese government or the biggest bull in the China shop would say: that China can grow at 8% for the next 20 years.

?Many people are pessimistic about the Chinese economy,? said Lin, who was speaking at a press conference with several reporters organized by the Chinese government?s International Press Center. ?So far none of the doomsday predictions have been realized.?

See: China Is Going To Be Just Fine?? WSJ

Source: http://www.forbes.com/sites/kenrapoza/2013/07/30/chinas-economy-steady-as-she-goes/

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