Slow China Growth Spooks Investors

Hong Kong’s benchmark index fell the most in more than a week on Monday, as the South China Morning Post reports that surprisingly poor economic data out of China drove investors to dump stocks. And while one economist told Xinhua News that the data showed that the new government doesn’t prioritize economic growth above all else, The Diplomat’s Zachary Keck wrote Tuesday that the worst may be yet to come for the Chinese economy in 2013:

Although there is some hope that domestic consumption will grow in line with the government’s new emphasis on this economic driver, there are also good reasons to believe that the economic slowdown will continue and likely get worse throughout the year. For one thing, these disappointing numbers came despite the economy being pumped with liquidity in March, when net new loans totaled Rmb1.06tn (US$171.2 billion).

A sustained sizeable fiscal stimulus is unlikely to be in the cards however, at least if Premier Li is to be believed. Over the weekend, for example, Premier Li told a seminar that “if interim measures have to be carried out, they should not set up barriers for promoting market-oriented reform and development in the future.”

In other words, if there is a fiscal stimulus in 2013, it is likely to be small and short-lived, given continued concern over the long-term impact of the massive fiscal stimulus the Chinese government injected into the economy in response to the 2008 financial crisis.

Li Ruoyu, an economist with the State Information Center, went further in expressing this viewpoint when comparing short-term stimulus aimed at reviving an 8 percent to “drinking poison to quench a thirst.”

The Wall Street Journal’s James Areddy and Tom Orlik note that the new austerity measures imposed by president Xi Jinping may have played a large role in the growth slide, as they report that “the days of miracles appear to be over” for the world’s second largest economy:

Less indulgence by officials “may be the largest factor” in dragging down first quarter growth, according to Lu Ting, China economist at Bank of America Merrill Lynch; 10 million of them carry government-issued credit cards that, on average, rack up annual spending of about $5,800, or a total of $58 billion, according to Shanghai research firm Emerging Asia Group

One measure of the funk is a 94% price drop for the yellow-colored dao yu, or knife fish. Two years ago, one of the Yangtze River delicacies traded wholesale for more than $220. They now cost $13.

The new austerity also is deflating luxury markets for art, liquor, entertainment and clothing.


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