Earlier this year, the runes pointed to a much needed improvement in China. That’s a relief said the markets, which went out and bought.

Over the last couple of weeks things have not been looking quite so rosy on the other side of the Great Wall.

Take the latest GDP data. This was published today and showed that in Q1 of this year the Chinese economy grew by 7.7 per cent, compared to an expected growth rate of 8 per cent.

More to the point, Chinese GDP expanded by 7.8 per cent in Q4 of last year, so that is some recovery! If the data is right, China’s economy has actually seen deterioration.
China has more woes. There are signs that businesses in China are pulling back on investment. After all, China does have rather a lot of surplus infrastructure at the moment.

There have also been growing fears of a credit bubble in China.
It is quite worrying that despite a possible credit bubble, China’s GDP is still slowing. In 2012 China’s GDP expanded by 7.8 per cent, which was the lowest year on year rise since 1990.

A growth rate of 7.7 per cent may seem pretty good to Westerners – and indeed European countries can only dream of such expansion – but productivity rises in China are such that without what by western standards is impressive growth, Chinese unemployment will surge.

The solution for China lies in trying to ensure more of China’s GDP trickles down into wage packets, and that consumer spending rises as a result. China’s government knows this, but knowing and making it happen are two quite different things.
We may think of China’s government as being all powerful, but in reality it is struggling to ensure the Chinese economy adjusts in the way it wants it to.

Meanwhile, in India, industrial production rose 0.6 per cent year on year in February, which was better than expected. It’s encouraging, but as Capital Economics pointed out on Friday, infrastructure activity weakened unexpectedly in February, and recent data shows that the auto sector remains in a funk, and the upturn in capital goods production looks unsustainable.

Aninda Mitra, India Economist at Capital Economics, said: “We would become more convinced about a sustained revival of investment and GDP growth only if both capital goods production and the infrastructure components of IP began growing together. This highlights once again the importance of speeding up approvals of infrastructure projects, and ensuring adequate power production by resolving power tariff disputes, and speeding up environmental clearances which are hobbling domestic coal supplies.”

© Investment & Business News 2013