China’s Economy More Active Than Official Data Suggest

But trouble is lurking around the corner

Workers process pork at a food factory in Rongcheng in Shandong Province, on July 19, 2018. AFP/Getty Images

The mood on Wall Street is decidedly gloomy on China. Ever since official data signaled a slowdown this past spring, market analysts have claimed that the world’s second largest economy is in critical condition. According to this narrative, investment is at historic lows, retail sales aren’t far behind, and the deleveraging campaign has crushed credit growth, ensuring that no stimulus is soon to follow.

This conventional view, derived almost exclusively from official data, for once undersells the economy’s true condition after overestimating it for much of the decade. Our China Beige Book data for the third quarter suggest that this view not only overstates current weakness, but more importantly misses trends that should cause investors real concern.

Investment and Consumption

Take investment spending. Counter to widespread belief, this metric isn’t cratering—it’s accelerating. The market’s view otherwise is based on official fixed asset investment (FAI), which is not the broad gauge of capital expenditure that commentators often assume it is. A relic of China’s command economy, the FAI metric with its focus on heavy equipment overlooks much investment, especially in new economy sectors like services and retail.