International | Aug 22 2006
By Chris Shaw
While the market has focused on the likelihood the latest increase in interest rates in China is a move to stop the economy from overheating, Standard Chartered Bank has approached the issue from a different angle and looked more closely at the actual growth figures.
Its analysis suggests the economy is not actually overheating and is in pretty good shape, with some evidence beginning to flow through the economy is not actually growing significantly faster than last year and may even be slowing slightly.
The problem, as it points out, is the figures released to show how much the economy is actually growing are unreliable at best and misleading at worst, forcing it to look for others ways to get an accurate reading on the level of economic activity.
One indicator it uses is the freight index, which measures how much material is actually being moved around via trains, roads and planes. This shows while growth has been strong over the past few years the June quarter offers some evidence of a slowdown, which implies the economy is not actually overheating.
In terms of what is actually being produced the bank looks at units of production of both metals and consumer durables, with the former still posting strong growth but the latter showing signs of a decline in an outcome somewhat at odds with official figures showing retail demand has been strong.
Using inventories as a measure gives similar results, as the figures for both light and heavy industry show a slight increase in demand. This leads the bank to suggest the economy is giving off mixed signals, so the headline picture of ongoing strong growth is not entirely accurate, while the implication the economy is overheating or at risk of doing so is similarly incorrect and a more correct view is of an economy growing at a solid rate.
Now, if only something could be done to solve the exchange rate issues that are continuing to attract attention.
