Markets: China’s statistical leap

While China this week reported an annualised growth rate of 7.5 per cent, experts are expressing growing concern about the economy's health.

China’s economy is flatlining while efforts to crack down on speculative lending and questionable practices are running into powerful Communist Party dynasties who control parts of the economy, say foreign experts on China.

“China is not growing at all,” Anne Stevenson-Yang, the Beijing-based founder of J Capital Research, told a conference organised by The Economist in Sydney.

“There has been a widening gap on statistics and what’s happening on the ground,” she says. “Now it is a gulf.”

China’s government has set a growth target this year of 7.5 per cent. But anecdotal evidence, according to Stevenson-Yang, who has been in several China’s major cities in the past two weeks, suggests growth has hit a wall.

Luxury outlets in Guangzhou, Beijing and Chengdu report to her that their sales are down by a fifth or as much as a third. Geoff Raby, Australia’s former ambassador to Beijing who now runs his own consultancy in the Chinese capital, says restaurants that were all but closed to anyone except Communist Party officials now welcome foreigners. Kerr Neilson, the co-founder of Platinum Asset Management, says prices and volumes of the fiery Chinese liquor Maotai have slumped, indicating the good times, at least for some, are over.

Moreover, says Stevenson-Yang, the spectre of a Chinese financial crisis looms large.

Stevenson-Yang says interviews she has done with executives at China’s smaller banks reveal that such financial institutions devote up to 80 per cent of their lending to rolling over their current loans. Big Chinese banks dedicate 50-60 per cent of their lending in the same way, she says.

And property developers, she says, are content to leave their housing uninhabited because current real estate clearing prices are below the cost of the loan.

A crackdown on the bank lending practices seems unlikely, says Stevenson-Yang as China’s banks are “Teflon banks” are largely immune to pressure because their balance sheets are so poor that any effort to halt their lending practices risks a financial crisis.

Kerry Brown, professor of Chinese studies at the University of Sydney, does not think President Xi Jinping will bring about any fundamental political, economic or financial reform.

The Communist Party of China’s political legitimacy, he says, rests on “its wealth creation machine”. Moreover, state-owned enterprises are “cash flows” for the central government and backed by some of the most powerful families in the country, making them largely above the law. Former premiers Zhu Rongji and Li Peng exert great influence over China’s finance and power industries respectively.

“These tribal political clans… are politically untouchable,” says Brown.