China’s 3Q Numbers Confirm Switch to Consumer-Led Economy

Despite a mind-boggling “Singles’ Day,” in which online consumers go frantic in a manner reminiscent of the Black Friday sales that follow Thanksgiving in the United States, the latest figures out of China indicate that the economy is stubbornly not reacting to Herculean attempts by Beijing to get it back on track via pump-priming through infrastructure spending.

In less than an hour, T-Mall, the Alibaba Group’s cyber shopping mall featuring branded goods, sold over RMB50 billion worth of merchandise. Despite that, the traditional drivers of the economy tend to confirm that the decades of headlong growth appear to be moderating. China’s campaign to transform the economy from export-led to consumer-led is demonstrated by the third-quarter statistics. Consumption is the only major indicator that has trended higher so far in 2015.

Official data on industrial production, retail sales and urban fixed asset investment released by the National Bureau of Statistics on Nov. 11 confirm that China's value-added industrial output -- the traditional economic drivers -- expanded by 5.6 percent annually in October, down from 5.7 percent in September.

The conventional old economy sectors have recorded decreasing numbers from the beginning of this year. Overall, growth has been calculated at just 5.7 percent, one of the lowest numbers since the outbreak of the global financial crisis in 2008. High tech, including the production of green-energy cars pushed by Beijing, has been soaring as dramatically lower sales purchase taxes have gone into effect on the leadership’s orders.

Another number regards urban fixed asset investment. The National Bureau of Statistics said that during the first nine months of 2015 it increased by just 10.3 percent compared to the same period a year earlier. Growth was 0.1 percentage point slower than the expansion seen in the first three quarters. This is the smallest expansion recorded since June 2000.

On the other hand, while the traditional big companies have failed to provide satisfactory results, the new economic pillar of the Chinese economy, retail sales, keeps strengthening, returning to an annual high at 11.0 percent y-o-y, beating consensus expectations and marking the fastest acceleration since December of last year and slightly ahead of 10.9 percent for September.

Consumption may end on a slightly upbeat note before 2016, especially as the aftermath of the Singles’ Day online shopping rush is expected to heat up further. The main contributor to the retail sales recovery is automobile consumption, jumping by 7.1 percent annually from 2.7 percent in the prior month, pushed by a reduction in the sales tax that came into effect on Ofct. 1.

In the upcoming months markets are not predicted to surge by achieving higher results. Instead experts are forecasting stability. In other words the current trend is expected to remain in place. Industrial output is expected to rise by 5.8 percent and urban fixed asset investment to slow to 10.2 percent from the same period. Retail sales will keep increasing to 10.9 percent, at least.

So the official numbers confirm once again that the Chinese economy is in the doldrums. The results are not motivating and the expectations are low. Experts do not raise their hopes for a favorable situation in the near future and this is not a hunch, but a forecast based on the statistics released.

Another problem is that China’s external trade is posing a deflationary problem for its major export destinations as exporting industries drive up production as long as the prices they fetch remain above the cost of production, and may even produce at an operational loss as the government fears unemployment from shuttered factories. The result, for China’s export partners, is deflation as China subsidizes global steel consumption, float glass and other sectors where overcapacity continues to reign .

With steel manufacturers, for instance, China, with lingering overcapacity from its ovens as a result of the country’s massive US$600 million stimulus in 2008 and 2009, has vastly increased its exports of steel, by 25 percent over this point in 2014. Overseas steel manufacturers are simply unable to compete against Cinese products. A combined statement by the world’s major steel producers issued a statement last week that the market “is suffering from a crisis of overcapacity and the Chinese steel industry is the predominant global contributor to this problem.”

Manvel Keshishyan is a Hong Kong University Master’s Candidate in the Journalism and Media Studies Center. He is an Asia Sentinel intern.