What's Going On In China?

Evan Osnos:

If China’s economic growth drops to seven or eight per cent this year, it will be led by declines in two of the main engines: real estate and exports. With Europe and America slumping, exports show no sign of improvement. And real-estate construction has stalled. As recently as March, economists were cheering Beijing for cooling the real-estate market down and managing what appeared to be a soft landing. Not anymore. There is a slowdown in steel and copper production, the first layoffs in a decade by manufacturers of construction equipment, and electricity production, which usually grows faster than the economy, grew by just 0.7 per cent in April, suggesting to those inclined to see it that growth may have flatlined. There are physical signs, too: coal and iron ore and other commodities are piling up at Chinese ports, and the huge fleet of coastal ships that usually move them around have been forced to venture beyond the Chinese seaboard, sailing out to look for new business—the freight equivalent of deer wandering out of the woods in search of food. Because it materialized out of the shadows, shipping people have it named the “ghost” fleet. And, yet, for all of that reason for alarm, flip through a few more (digital) pages, and you’ll discover analysts who suspect that, actually, as Stephen Green at Standard Chartered told to the Financial Times, “The market may have bottomed—a development that could reignite the construction boom and have big implications for economic growth.” Indeed, after falling for nine months, housing prices began to rebound in major cities in June. Moreover, some developers are feeling bullish enough to begin buying land again. Sentiment is looking up, and if the sales increases persist, the property market just may “muddle through,” as Green put it. Worries about inflation are also down sharply from their peak in late 2010. And for all the talk of a slowdown, one other group is arguing that China’s official stats don’t capture signs of recent improvement. The China Beige Book, a new private survey inspired by the U.S. Federal Reserve’s Beige Book, drew on interviews with two thousand or so bankers and executives and found strength in retail, manufacturing, property sales, and hiring—findings that “diverge considerably from the current ‘gloom and doom’ narratives,” according to the organizers.

I'm not surprisingly in the pessimistic camp, but China is so opaque, especially with the view from Western Ohio, so one never knows.  With the stagnation in the United States, the ongoing Depression in Europe, and potential slowdown in China, things are going to be a mess in 2013.  Unless we are lucky, and I am wrong.  Both are very real possibilities.