Federal Reserve Report Says China’s Economic Rebound Only Temporary


A new report released by the Federal Reserve Bank of Kansas City sees China’s economic growth easing in the near future due to the provisional nature of factors supporting a rebound in 2017.

The report entitled “Has China’s Growth Reached a Turning Point” would appear to be privy to special insight into the inner workings of the Chinese economy, given that it was co-authored by Yandong Jia, a researcher from the Research Bureau of the People’s Bank of China, in collaboration with Jun Nie, a senior economist at the Kansas City Fed.

China’s economic growth has seen a modest rebound this year, with central bank governor Zhou Xiaochuan noting a recent speech that 2017 first half growth came in 10 basis points ahead of 2016 full year growth at 6.8%, and that second half growth is expected to rise to 7%.

According to the report by Jia and Nie, however, the rebound is likely to only be temporary due to its dependence upon provisional factors, such as the depreciation of the Chinese yuan last year which helped to boost exports, and robust prices and production for global commodities.

“The recent slate of positive data has…sparked a debate about whether the Chinese economy is experiencing a temporary rebound or a more sustainable upturn in growth,” said the report.

“Our analysis indicates that the momentum of Chinese growth is likely to slow in the near term….an analysis of its underlying forces suggests this momentum may not be sustainable

“In addition, strength in policy-related variables has been waning, creating additional downside risks to near-term growth.”

While the strong performance of manufacturing and investment has contributed significantly to China’s current rebound, the study points out that this too is likely to be of only provisional benefit given changes to the country’s economic structure.

“The Chinese economy is undergoing a transition in which economic growth is rising in some sectors of the economy but declining in others.

“As China is transitioning from an investment- and export-driven economy to a more consumption-driven economy, the recent improvement in the manufacturing, investment and trade group is likely to be temporary,” said the report.

Another problem highlighted the unreliable nature of official data – an insight which carries heavy clout given that one of the report’s authors is a PBOC official.

“China’s official quarterly GDP figures have been criticised for being overly smooth and less informative,” said the report.

“Moreover, Chinese government policies have stimulated or cooled the economy at different times, further muddling the signal from economic data.

“To better assess whether the recent uptick in growth is sustainable, we use a factor analysis of monthly measures of Chinese economic and policy activity in key sectors.”