It’s always good to have a plan. So China has a new five-year plan, its 13th. And the plan is to dial down China’s formerly white-hot economy to a target of “medium-high economic growth” for the five years starting in 2016.
“The country will promote greater sophistication in its industrial sector and significantly raise the contribution of consumption to economic growth,” according to the Global Times, a tabloid under the People’s Daily, which is the official propaganda organ of the Communist Party. The goal is to double 2010 GDP and per-capita income by 2020 and create “a moderately prosperous society.”
That’s all exciting stuff for the future. Meanwhile, there’s today.
And today, the Chinese economy isn’t exactly hopping, despite the official GDP growth rate of 6.9% that no one believes, especially not the Chinese leadership. So the People’s Bank of China cut its benchmark interest rates a week ago – the sixth cut since November – to the lowest level in the data going back two decades.
The leadership is trying to reform and restructure the economy away from low-value cheap-labor manufacturing to the miraculous powers of consumerism, implemented decades ago with such glorious success in the US and elsewhere. So exports and imports have been plunging. But no big deal because retail and services are going to make up for it. But other problems are cropping up….
“China’s steel demand evaporated at unprecedented speed as the nation’s economic growth slowed,” Zhu Jimin, deputy head of the China Iron & Steel Association, explained on Wednesday, according to Bloomberg. Demand for steel, which is used in everything from buildings to cars, has dropped by 8.7% in September from a year ago. Prices have crashed. And steel mills are buckling under their debts even as they’re producing tons of red ink in an ocean of overcapacity.
Car and truck sales, which have propelled China to the largest auto market in the world with double-digit annual growth rates, started to skid this year and actually declined over the summer, year-over-year.
Auto manufacturing, sales, and service are big employers. Manufacturing plants and dealerships are still being constructed at breath-taking pace, at a time when “overcapacity” has become the dark cloud over the industry.
To keep the boom from imploding, the frazzled government flooded the market with incentives. It worked in halting the slide for now: in September, sales picked up a little. But when government incentives are required to keep sales from plunging, it’s going to get tough.
The country’s two biggest oil companies offered a bleak picture of demand from the world’s marginal consumer of the commodity in its latest quarterly results, out Thursday. At Sinopec, the country’s biggest refiner, officially known as China Petroleum & Chemical, total sales of refined products in the third quarter dropped 3.4% in volume from a year before. That’s a marked change from their 5.3% rise during the first half of the year.
Yet this dismal figure is bloated by Sinopec’s increasing exports of refined products, a symptom of China’s excess refining capacity. Strip those out and Sinopec’s domestic sales of gasoline, diesel and more were down 4.2% in the September quarter. At PetroChina, the nation’s second-largest refiner, product sales fell about 2% last quarter.
These are declines in volume, not revenues. They’re not a reflection of any decline in prices.
They’re a pure measure of demand for the fuel that makes the vaunted consumer economy tick.
And oil bulls, desperately hoping that miraculously booming demand for oil in China would somehow pull the world out of the oil bust, might have to rejigger their scenarios.
Diesel, used mostly by trucks in China, is a gauge of transportation of goods. Demand for diesel has been weak for the last two years – despite protestations by the government of solid economic growth. Numerous reasons have been cited for low shopping mall traffic, among them booming internet sales. But all retail sales, wherever they occur, entail the transportation of goods. And this should stimulate demand for diesel, you’d think.
And now demand for gasoline has started dropping too in September – and perhaps even more indicative, so has demand for jet fuel!
OK, there is always the argument that vehicles and planes are getting more efficient and require less fuel. But that plays out very slowly over many years or decades, as old vehicles or planes are replaced by new ones. It has no visible impact on a monthly or quarterly basis.
What remains is the notion that activity is declining, that demand for transporting goods is falling, that people apparently are driving less. And now they’re also flying less? This would be a drastic change in an economy that has soared at mindboggling speeds year after year, but now is apparently out of fuel and in serious hard-landing mode, with the pilots flailing about to keep it from crashing.