China Factory Output Sputters--Up 8.9%

In another sign the China has moved toward a recession of sorts, its factory output pace fell last month. The National Bureau of Statistics said production increased 8.9% year-on-year in August. The rate was 9.2% in July. The consensus forecast of analysts pulled together by Bloomberg was 9%.

The data confirms early PMI figures from the government and HSBC, each of which demonstrated that the economy of the People’s Republic has fallen into a slump.

One of the issues about China which is hotly debated is what the definition of a “recession” there should be. The normal and universal standard set by economists is a contraction of GDP for two consecutive quarters. But, what applies to mature economies may not apply to China at all.

The factory capacity of China has grown so quickly that a slowing in exports would cause a situation in which the sector would be overbuilt. Factory employees, who make up much of China’s 200 million strong middle class, might face slower growing, or lower wages. This in turn would undermine consumer spending which has become an increasing larger amount of GDP

China’s economic expansion may have slowed more than the government says. What is supposed to an expansion of 8% according to officials may be well below that if the People’s Republic reports numbers better that they really are.

China may have moved into recession already.Third and fourth quarter GDP could be abysmal by its standards

Note: The government also noted that inflation last month was 2%

Douglas A. McIntyre