China Regions Show Economies Differ as Slowdown Deepens
Sunday, November 9, 2014
Posted by: Karen Kistenmacher
China Regions Show Economies Differ as Slowdown Deepens
By Bloomberg News - Nov 9, 2014
From China bears such as Larry Summers to bulls including Lloyd Blankfein, there’s agreement the world’s second-largest economy is slowing. Provincial indicators reveal that while that’s true nationally, some regions are doing increasingly better than others.
Of China’s 31 provinces and municipalities, 19 recorded a slowdown, three posted the same pace and nine saw a pickup in the January-September growth rate from the first half, according to Bloomberg calculations of data released by the governments or state media. All are missing their own expansion targets.
Provincial outcomes are diverging as the economy heads for the slowest full-year expansion since 1990. While the industrialized northeast is bearing the brunt of a real estate collapse, some inland provinces are still boasting the heady growth rates of old, boosted by infrastructure investment.
“The Chinese government used to support infrastructure building across the country so all provinces grew very fast. Now you have relatively weak ones and strong ones,” said Zhang Zhiwei, chief China economist at Deutsche Bank AG in Hong Kong. “This divergence across provinces will probably continue.”
The following seven points illustrate what’s happening in the provinces of the world’s second largest economy:
1. Targets Missed
None of the 31 provinces and municipalities are matching growth goals set at the start of the year. The biggest shortfall is in Shanxi province, where the Qatar-sized economy grew 5.6 percent in the first nine months of 2014 from the same period a year earlier, compared with its annual target of 9 percent. Seventeen provinces are falling short of their targets by at least one percentage point, according to Bloomberg calculations.
“It just signals the intention for the government to let the economy structurally adjust,” Chorching Goh, World Bank lead economist for China, said after a briefing in Beijing last month. The lower headline numbers mean that officials are willing to accept more subdued growth, and “that willingness will show up especially at the provincial level,” Goh said.
China’s provincial growth figures have historically been viewed as less trustworthy than the national figure, with the sum of regional output typically larger than the national gross domestic product. This year, the gap has narrowed according to Bloomberg calculations.
2. Deflation Spreads
Eighteen provinces reported a nominal growth rate lower than the price-adjusted level, signaling deflation. Inner Mongolia and Hebei provinces, suffering from overcapacity and commodity price falls, posted 3.3 percent and 3.6 percent nominal growth versus 7.7 percent and 6.2 percent real growth. Shanxi posted 0.9 percent nominal growth.
“The risk of deflation is unquestionable,” said Xu Gao, chief economist at Everbright Securities Co. in Beijing. “Most of these provinces rely heavily on industry and are experiencing PPI deflation,” Xu said.
China’s producer price index is forecast to decline for a 32nd straight month in October, according to economists surveyed by Bloomberg ahead of data scheduled to be released today.
3. Collapse in the Northeast Rust Belt
While a property collapse hasn’t spread nationwide, a double digit drop in real estate development in the northeast is dragging growth in Liaoning, Jilin and Heilongjiang -- where combined output last year was equal to Indonesia’s.
Liaoning’s expansion slowed to 6.2 percent in the first nine months from 7.2 percent in the first half and 7.4 percent in the first quarter. The region’s property investment dropped 10.5 percent in the first nine months from a year ago.
“The situation of the economy is severe and complicated, and the downward pressure has deteriorated,” said the province’s official Liaoning Daily in a report.
Heilongjiang, which reported the slowest growth in the country in all three quarterly releases this year, recorded a 14.3 percent drop in real estate investment. Its industrial output grew 2.4 percent, less than a third the national average.
Jilin registered an 18.3 percent drop in real estate and 6.5 percent growth in industrial output.
4. “Go West” Provinces Not Immune
China’s western provinces, playing catch up and boosted by the central government’s “Go West” strategy, are not immune. Yunnan’s expansion slipped to 8 percent in the first nine months of the year from 12.1 percent a year earlier.
The province’s economy is “generally stable” while “downward pressure is still relatively heavy,” the local statistics bureau wrote in a statement on its website.
Tibet, Ningxia and Qinghai -- the smallest three economies in China -- all saw growth slip by more than one percentage point from a year earlier.
Southwest Guangxi province grew 8.3 percent compared with its 10 percent annual target. It is offering a cash payment to companies that invest money raised abroad locally as it seeks to meet its annual growth target without taking on new debt itself, officials familiar with the matter said.
Some central western regions are defying the national slowdown. Chongqing, headed by disgraced politician Bo Xilai between 2007 and 2012, recorded 10.8 percent growth. It was among the first provinces to release its third-quarter number and proudly announced its top ranking. Industrial output grew 12.7 percent compared with the 8.5 percent national average, and fixed-asset investment expanded 18 percent.
Southwest Guizhou maintained a 10.7 percent rate, buoyed by exports and construction, according to the statistics bureau.
6. Still Reliant on Investment
China’s provinces have relied heavily on fixed-asset investment since a 4 trillion-yuan stimulus package in 2008.
Chongqing, Guizhou, Tibet and Tianjin -- the four regions recording double digit growth -- all saw investment increases outstrip the national average of 16.1 percent. Liaoning registered the slowest growth in fixed-asset investment, 0.7 percent, and its economic expansion slipped to 6.2 percent.
“China will continue to keep infrastructure spending as the growth driver,” said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong. “They still believe there is so much need for investment in central west regions.”
7. Widening Inequality
Nationwide, the average wage increase of 10.2 percent for January through September from a year earlier outstripped GDP growth. The fastest pay rises were seen in economic outperformer Chongqing and the financial center of Shanghai.
Less fortunate are workers in Hebei, Inner Mongolia and Gansu, who receive about half as much as their Shanghai counterparts and saw pay increases at less than half the national level.
“Some parts of China’s economy see stronger downward pressure than other parts such as those relying on heavy industries,” said Louis Kuijs, Royal Bank of Scotland Group Plc’s chief Greater China economist in Hong Kong. “That’s behind the variation we see in growth and the labor market.”
“It’s unavoidable to have widening inequality if the overcapacity is reduced,” Kuijs said. “It’s not the end of the world. It may call for a better social safety network and the government to damp that gap.”
Guangdong and Jiangsu, China’s top two exporters and the largest regional economies, didn’t splash out on its workers. The two provinces, which in the first nine months shipped goods and services worth more than Switzerland’s total output last year, gave 6 percent and 5.3 percent average raises.