Fra Fathom Consulting:
We believe that China’s policymakers have thrown in the towel on re-balancing, in favor of ‘doubling-down’. For the third consecutive month our China Momentum Indicator (CMI) suggests that economic growth is around 2.4%, 0.2 percentage points above January’s record low.
Returning to its old growth model of credit-fueled investment will boost growth for a while. In that sense, it will ‘work’. But ultimately it will only add to China’s excess capacity.
Our own measure of economic activity in China, our China Momentum Indicator (CMI), stood at 2.4% in the twelve months to May, unchanged from April. That is 0.2 percentage points above January’s record low – the point at which China’s dramatic slowdown seems to have bottomed out.
Listening to Premier Li Keqiang, speaking at the Summer Davos at the end of June, one might think that this pick-up is due to ‘new drivers in the economy rapidly growing’. However, the CMI indicators most closely related to China’s tried-and-tested growth model, electricity production and railway freight, have picked up since the turn of the year, thereby increasing our conviction that China has instead restarted its old growth engines
