By Gordon G. Chang , World Money Analyst
Beijing's National Bureau of Statistics (NBS) announced that in the second quarter the Chinese economy grew 7.6% from the same period last year.
China is slowing: Q2 was the sixth consecutive quarter of declining growth. This year, growth will come in below the 9.2% reported for last year and the 10.4% for 2010.
Global markets nonetheless shrugged off the Q2 result. We should not be surprised. The announced number was within estimates, which mostly ranged from 7.3% to 7.7%, and it was above Premier Wen Jiabao's full-year target of 7.5%. In any event, China's economy compares favorably to that of other major countries.
The dominant narrative is that the Chinese economy will land softly and continue to expand at about 7% for the indefinite future. There's only one thing wrong with this storyline. China is not growing anywhere near the presently claimed 7.6%. In reality, the country is far closer to zero growth. It may even be contracting.
The Pulse of China
At first glance, a contraction seems impossible. After all, NBS on Friday also reported robust numbers for June. Last month, retail sales jumped 13.7% and industrial production increased 9.5%. Fixed asset investment, excluding rural households, was up slightly.
Moreover, these NBS numbers were consistent with figures showing rising loan books-new bank lending was 919.8 billion yuan (US$145.5 billion) last month, well above the 633.9 billion yuan from the same month last year-and robust passenger car sales, which were up 15.8% from a year earlier.
Yet, the most important signs point to an economy in distress. The most reliable indicator of Chinese economic activity is the production of electricity. In April, China produced only 0.7% more juice than it did in the same month last year. In May, there was a 2.7% increase, and in June electricity production decreased by almost 1%. Because the growth of electricity historically outpaces the growth of gross domestic product, it is almost certain that China's economy contracted during April and June.
Continue Reading: Synchronized Global Downturn: The China Factor - International Man