CHINA´S NEW YEAR DATA DISSAPOINT / THE WALL STREET JOURNAL

HEARD ON THE STREET

March 10, 2013, 10:02 a.m. ET

China's New Year Data Disappoint

By TOM ORLIK

 

The numbers on China's growth and inflation in the first two months of the year make for sobering reading.


Consumer prices rose 3.2% year on year in February, up from 2% in January and the highest level since April last year. That partly reflects the impact of the Lunar New Year holiday, also known as Chinese New Year, which caused a spike in food prices. But the figure is also higher than expected, and points to a bumpy ride for inflation. Industrial output growth fell back to 9.9% from 10.3% at the end of 2012.


Rock-steady growth in retail sales showed signs of eroding. Growth of 12.3% year on year in January and February was down from 15.2% in December. Slower wage growth and a crackdown on official excess could both be factors. Either way, it is a bad sign for the current momentum of growth and efforts to rebalance the economy toward consumption.


At first sight, China's trade data seem to suggest greater strength. Exports were up 23.6% year on year in the first two months of 2013. But that appears at odds with lackluster demand in major export destinations the U.S. and Europe. Supercharged growth in sales to Hong Kong—up 60% in the same period—suggests fake invoicing by exporters may be inflating the growth rate.


The real-estate sector showed more solid signs of rebounding, with a thumping 55.2% year-on-year increase in residential floor area sold in January and February. Stronger sales also drove higher construction. But that came before the State Council's announcement of strict controls on the sector, indicating a willingness to pay a price in slower growth to safeguard housing affordability.


There is enough new credit already at work in the economy to prevent a sharp slowdown. Total social finance—a measure that includes new loans and other sources of finance—came in at 3.61 trillion yuan ($580 billion) in the first two months of the year, up 78.7% year on year. Data on the Chinese economy in January and February, when the New Year plays havoc with activity, also need to be treated with caution.


But for now it seems that China's end-2012 mini-stimulus is costing more in inflation, and delivering less in growth, than its architects hoped.