Monday 10 September 2012

Construction and Real Estate Hinder China’s Growth

CHENGDU, China — With more than 100 tall cranes on the skyline, this metropolis in western China looks vibrant at first glance despite the country’s sharp economic slowdown.

But only a few cranes — those building national government projects like a high-speed rail line — are floodlit and busy far into the night. The more numerous cranes looming above the skeletons of future high-rises move much less often, even by day, and are dark and deserted by night.

The pattern among Chengdu’s construction cranes is evident across the country. As summer fades into autumn, Beijing is stepping up investment in a bid to rescue the economy, but consumers, businesses and debt-burdened local governments in China are showing little interest in spending money again.

Economic data released on Sunday by the National Bureau of Statistics showed the extent of the problems. Investment in new buildings and other fixed assets is in the doldrums. Manufacturers are retreating from ambitious production goals as they struggle with bloated inventories of unsold goods. Even the service sector, still underdeveloped and widely seen by economists as full of potential, is showing signs of distress.

“Business is slow these days — just look around this shopping center, there are so few people walking around,” said Zhong Yongping, a beautician in downtown Chengdu, as she woke on Thursday from an afternoon nap while she waited for a customer to show up.

Industrial production grew only 8.9 percent in August from a year ago. That was even slower than economists had expected, and the weakest pace since May 2009, when the global economic downturn was still in full swing.

But the real problem, as signaled by the slow-moving cranes at high-rises in Chengdu, lies in fixed-asset investment, previously the mainstay of the Chinese economy.

“Construction is slowing down,” said Zhao Chenzhen, a young electrical worker, as he and other workers in red hard hats left a darkened high-rise construction site in Chengdu early Friday evening.

President Hu Jintao said in a speech on Saturday at the Apec summit meeting in Vladivostok, Russia, that China’s economy suffered from a “lack of balance, coordination and sustainability.” He strongly hinted at further economic stimulus, saying that, “We will boost domestic demand and maintain steady and robust growth as well as basic price stability.”

Bankers and executives say that across China, developers have slowed construction to the most cash-conserving pace possible without activating default clauses on their loans by stopping work entirely and sending away the cranes.

That slow pace, done on single shifts instead of three shifts around the clock as in the past, also showed up in national data on Sunday.

Fixed-asset investment grew 20.2 percent in the first eight months of this year compared with the same period last year. It was the second-lowest pace since December 2002; only May of this year was marginally lower.

While even 20.2 percent might sound high by international standards, it overstates actual growth by including the replacement of existing factory equipment and buildings that may have worn out, in addition to new investment.

The monthly data also includes extensive double-counting, which Chinese statisticians only eliminate in more comprehensive annual data.

The August figure for investment growth was weaker than expected even though central government agencies in Beijing have started spending more money again. Their investment spending rose last month from year-ago levels for the first time in 15 months, the details of Sunday’s official data showed, as Beijing started trying to revive the economy.

Central government investment spending fell late last year and early this year as the economic stimulus put in place in 2009 wound down.

It was the rest of investment spending that has been weak this summer and remained so in August. Local government investment spending, for example, grew last month at the slowest pace since December 2001 — and local government investment spending in China is 18 times as large as central government investment spending.

Er Reema Chordiya [ BE, MBA, Member of the Advisory Board at
Minu-Sepehr AeroSpace University,USA ]
Manager HR

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