Conventional wisdom wrong on China economic slowdown, Lardy says

The idea that China’s economic growth is slowing, leaving Beijing little option but to cave in on the trade war with the U.S. is widespread – but it might well be wrong, according to a U.S. think tank.

“The reality is that, as has been the case for the last few years, the case for China’s imminent economic difficulties is overblown,” Nicholas Lardy, a China expert at the Peterson Institute for International Economics in Washington wrote in a recent note.

China’s economic growth slowed to 6.7 percent, the slowest pace since 2016, in the second quarter as Beijing’s campaign to cut debt began to bite. In July, major gauges showed that the world’s second-largest economy was losing momentum as the trade spat with the U.S. lingered. The earliest indicators signal that the pace of expansion continued to slow in August.

But Lardy argued that the slowdown narrative might be a mistake, because “the conventional wisdom that fixed asset investment in China is slowing dramatically is based on faulty data, and there is no sound empirical evidence that consumption in China is weakening.”

The National Bureau of Statistics is currently revising its method used to calculate fixed asset investment, which had involved “considerable double counting,” and the authorities are acting to reduce it. The slowing growth of this metric may overstate the case, and doesn’t provide any meaningful guidance, according to Lardy.

On the consumption side, retail sales, the most widely used gauge, are becoming less useful, as it fails to fully capture Chinese spending online, and on education, health care, travel and other services, he argued. Chinese consumption is still solid, judging from a quarterly reading, which is the best data to track, according to Lardy. Bloomberg