China: Forget About Rebalancing

China: Forget About Rebalancing
People work at an offshore oil engineering platform in Qingdao, China, July 1, 2016. According to the independent China Beige Book survey, the economy has stabilized, but this improvement comes at a price. STR/AFP/Getty Images
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Nobody believes the official Chinese economic data, but people still have to use it in their analysis because there aren’t many good alternatives. 

The official data for 2016 tells us real estate in China is bubbly, credit is growing by leaps and bounds, manufacturing activity is bouncing back, and State Owned Enterprises (SOEs) are investing like there is no tomorrow, while their private counterparties are slamming their wallets shut.

In the meantime, profits at most companies are hurting. Struggling to repay their massive debts, some of them have even folded and gone out of business.

So if the official data is unreliable, what is really going on? Fortunately, we have the China Beige Book (CBB) to tell us what’s happening on the ground—and this quarter’s findings largely back the official narrative.

On the Ground Data Backs Up Stimulus Theory

CBB collects data from thousands of Chinese firms every quarter including some in-depth interviews with local executives and bankers. Although the CBB does not give definitive growth numbers, it logs how many companies increased their revenues or how many laid off workers, for example.

Most importantly, the CBB report for the third quarter of 2016 backs up the claim the Chinese regime resorted to old-school stimulus to keep employment from collapsing, thus pouring cold water over the hopes of a rebalancing to a consumer and services economy. 

“The growth engines this quarter were exclusively ‘old economy’—manufacturing, property, and commodities. The ‘new economy’—services, transportation, and especially retail—saw weaker results,” the reports states.

(China Beige Book)
China Beige Book
Valentin Schmid
Valentin Schmid
Author
Valentin Schmid is a former business editor for the Epoch Times. His areas of expertise include global macroeconomic trends and financial markets, China, and Bitcoin. Before joining the paper in 2012, he worked as a portfolio manager for BNP Paribas in Amsterdam, London, Paris, and Hong Kong.
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