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Weeks Ago Steel Production Showed China’s Economy Was On The Rocks

China just announced economic growth has slowed. And some analysts are saying they expected the second-largest economy to have done better.

That was a mistake. There were concrete signs that the Chinese economy was in far more trouble than many would admit, as reported here last month.

News broke early Monday that China’s economy grew at a relatively modest 4.9% in the September quarter, compared to 7.9% over April through June.

That recent performance was lower than the 5.2% that analysts had expected. However, for two reasons, those Wall Street professionals should have expected even worse performance.

China’s Economic Data: Aspirational or Actual?

First, it’s worth remembering much Chinese government economic data are more aspirational than actual. Put simply, don’t mistake the data points as a transparent and accurate reflection of the health of the Chinese economy. In short, these statistics are not like U.S. and UK data.

But instead, these data are more akin to what the Chinese Communist Party wants the world to think. They are aspirational. In this case, the message to the world is that China is still growing apace, albeit slower than previously.

Other Data Shows A Dire Story

What is perhaps surprising about last quarter’s results of 4.9% growth is that the figure is so positive. Last month I reported that China saw its steel production drop 13.2% during August compared to the same month a year ago, while the other major world producers saw big increases in steel production. The World Steel Association produces these data: they are generally considered solid.

That fall in steel output should have alerted all analysts that China’s economy is at the very least having problems and is in deep trouble at worst. China produces more than half the world’s steel, so when the metal output is down by a double-digit amount, you should know there are significant issues in the Asian country.

That matters because China’s economy is still heavily reliant on steel. The manufacturing sector is 30% of the total and includes the world’s largest output of automobiles and loads of consumer goods. Now add in the construction sector, which totals 26%, and it should be clear there’s a real problem inside China’s economy.

China faces a further problem which could slow its economy more. The cost of energyu of all types (coal, gas and oil) has surged lately. That matters because steel production, construction, and manufacturing all require boat loads of the stuff to operate.

What we may find later this year is that not only is the decline in China’s economy will speed up but many companies may find themselves unprofitable.

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