China Closed Out 2012 With a Lot of Stimulus

Was China’s bear-defying strong fourth quarter a sign that they’ve successfully “rebalanced” their economy toward growth oriented toward domestic consumers and away from heavy investment spending? Nope. A nice analysis from Kate MacKenzie shows they bumped up near the end of 2012 by re-ramping a lot of central government stimulus, as seen in the above charts of skyrocketing levels of Fixed Asset Investment.

The key thing on the left is that private fixed asset investment massively decelerated while still remaining absurdly high at a 25 percent growth rate. That’s a lot of fixed assets. Then you can see on the right that the PRC opened the year with an effort to have the central government at least pull back somewhat on this. But by the back half of the year, central government fixed asset accumulation was back to a rapid growth rate. Meanwhile, China as a whole is very much a “commanding heights” economy with lots of state involvement in all levels of economic decision-making so we shouldn’t see these three categories as rigorously separate. It’s still clearly the case that if the PRC authorities just decided to let things shake out however the market wants, that the country would settle into a much lower-growth lower-resource-utilization equilibrium.

To MacKenzie (or her headline writer) that means China “still has the same old problems.” I would say the other way to look at that is that China still doesn’t have the same old problem of having settled into a slow-growth, low-resources-utilization equilibrium that we see in much of the developed world.