Is China’s Economy in even Deeper Trouble than We Think?
Rail freight volume plunges to 2007 levels.
Rail freight volumes are an indicator of China’s goods-producing and goods-consuming economy, not just manufacturing, construction, agriculture, and the like, but also consumer goods. Thus they’re also an indication of consumer spending on goods. Alas, rail freight volume is collapsing: the first quarter this year puts volume for the whole year on track to revisit levels not seen since 2007.
While China’s economy was strong, rail freight volumes were soaring. For example, in 2010, when China was pump-priming its economy, rail freight volume jumped 10.8% from a year earlier. In 2011, it rose 6.9%. It had soared 44% from 2005 to 2011! But 2011 was the peak.
In 2012, volume in trillion ton-kilometers declined one notch and in 2013 stagnated. But in 2014, volume skidded 5.8%. And in 2015, volume plunged 10.5% to 3.4 billion tons, according to Caixin, citing figures from the National Railway Administration. It was the largest annual decline ever booked in China.
It was a year that the People’s Daily, the official paper of the Communist Party, described in this elegant manner:
Dragged by a housing slowdown, softening domestic demand, and unsteady exports, China’s economy expanded 6.9% year on year in 2015, the weakest reading in around a quarter of a century.
Which is precisely where things stop making sense: rail freight volume plunges 10.5% in 2015, and the economy still increases 6.9%? I mean, come on.
At the time, Caixin said that China’s central planners aimed to increase rail freight volumes to 4.2 billion tons by 2020. This would assume an average annual growth rate of 4.3%. So these declines are not part of the planned transition to a consumption-based economy. They’re totally against that plan or any other plan. They’re very inconvenient for the rosy scenario!
Then came the first quarter of 2016.
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