The long-feared Chinese hard landing has become a reality in rustbelt Liaoning.The northeastern province, ground zero in China’s multi-year slowdown, saw its economy contract 1 percent in the first half of 2016 as factories splutter and the coal industry groans under the weight of overcapacity.
But the hardship remains localized, with regional data for the first six months showing economic growth in 15 of the nation’s 31 provinces perked up from the first quarter.
And while the golden age of across-the-board double-digit growth is history, three provinces still maintained such rates, with inland Chongqing again topping the pack.
Together, the provincial data add to a picture of stabilization as a recovering property market and fiscal support cushion the drag from stalling old growth engines.
For policy makers, the sharpening divergence argues for tailored fiscal and monetary settings rather than nationwide stimulus that risks flooding outperformers with liquidity, brewing bubbles and over-investment.
The People’s Bank of China has held its benchmark policy rates unchanged since October, instead channeling money via policy banks tasked with lending for specific, government sanctioned purposes. Meantime, the government — often by stealth fiscal stimulus — has poured cash into infrastructure projects to prop up employment in some areas.
Researchers at China’s top economic planner on Wednesday called for further monetary easing this year to help lower business costs and boost investment, a rare move as such policy is under the central bank’s purview. They also called for implementing “proactive” fiscal policy and making investment more effective amid downward pressure on spending.
With growth in fixed-asset investment by the private sector — arguably the best gauge of business confidence since it measures expansion plans — slumping to 2.8 percent nationwide, the government sent officials to various parts of the nation to seek ways to boost such spending.
The results can be seen in northwestern Qinghai, one of the poorest provinces, where private investment plunged 13.8 percent in the first half from a year earlier, local data show. Yet overall fixed-asset investment jumped 12 percent as the government and state-owned corporations stepped up spending.
Other provinces pursued a similar strategy, boosting the role of the state. Inner Mongolia and Shandong increased investment spending on infrastructure such as roads, railways, telecom networks and water treatment facilities to levels almost double the national pace. By contrast, China’s biggest regional economy Guangdong missed out on government largess, with a modest 3.4 percent gain in infrastructure investment even though property and private investment there outpaced other regions.
Yet as the chart above illustrates, a recovery in property sales in the first half didn’t translate into an across-the-board pick up in real estate investment, with developers in Beijing proving especially cautious.
Authorities in the nation’s capital — so large it constitutes one of the four provincial-level economies — appear happy for it to continue down the post-industrial path. Factory output there rose a mere 1.7 percent in the first half from a year earlier, local data show. In Shanghai, industrial production shrank 4.4 percent. Both metropolises, whose service sectors account for about two thirds of their economies, are shutting polluting factories in an effort to get cleaner air.
In the nation’s worst-performing economy, Liaoning, factory output declined 7.7 percent in the first six months, prompting an exodus of workers.
Liaoning’s state television channel sought to look on the bright side: instead of bemoaning the province’s 1 percent contraction, it buried it in math by lauding the 3.2 percent services growth that was “4.2 percent faster than its GDP growth.”
At the other end of the spectrum, Chongqing, the inland city-province that’s another one of the four directly managed by the central government, posted an enviable 10.6 percent growth rate in the first half, with industrial output rising 10.2 percent as factories move there for cheaper land and labor.
Some rust belt regions are bottoming out. Jilin, which borders Liaoning and North Korea, matched the national economic growth rate for the first time since 2013, thanks to a booming car manufacturing sector. It also attributes the jump in factory performance to aggressive reduction of overcapacity and better performance of state-owned enterprises.
Heilongjiang, which also borders Liaoning, hasn’t released growth data yet — a worrying sign since the worst performers tend to release their numbers last.