The latest deterioration in Chinese economic data shouldn't come as a surprise to anyone. Despite the disbelief among Wall Street economists, it certainly didn't shock us. The “Old China” economy (i.e. heavy industry and construction) endured a massive deceleration from mid-2014 through year-end 2015 and a massive acceleration from early 2016 through the first quarter of 2017 (see Chart of the Day below).
That was perpetuated by a tremendous amounts of unsustainable stimulus. For the full year 2016, the People's Bank of China pumped a net +1.727 trillion yuan into mainland financial markets. This figure was up +5,857% versus the amount of net liquidity it provided in 2015. Open-Market Operation liquidity provision is tracking down -241% year-over-year on a year-to-date run-rate basis.
"Just knowing that China created an 'un-compable comp' for itself in 2017 was really all you needed to know to get the Chinese economy right this year," writes Hedgeye Senior Macro analyst Darius Dale in today's Early Look.
- You didn’t need to know that nominal GDP growth in China’s secondary industries accelerated in a straight line from a secular trough of +0.9% YoY in 4Q15 to an unsustainable +14.2% YoY in 1Q17.
- You didn’t need to know that China’s fixed investment and manufacturing economy accounted for an equally unsustainable 45.4% of China’s nominal GDP growth on a trailing four-quarter basis – the highest rate since 3Q11.
- You also didn’t need to know that property price appreciation continues to run double the growth rate of urban disposable personal incomes.
All you really needed to know was the sequence of events that led to China’s current and now eminently observable slowdown. Right on cue, Chinese economic data is slowing down. Recently reported data on Electricity Consumption, Industrial Production, Fixed Asset Investment, Manufacturing PMI and New Orders all slowed from the prior month.