China's Congress Is Over, And So Is The Period Of "Coordinated Global Growth"

It is hardly a secret that thanks to nearly $4 trillion (at least) in credit creation in 2017 - more than the rest of the developed world combined - China has been the proverbial (and debt-funded) "growth" dynamo behind the recent period of "coordinated global growth." Unfortunately, much if not all of this was window dressing for the just concluded 19th Communist Party Congress, which in not so many words, made Xi Jinping into a de facto emperor with no apparent or otherwise heirs.

The problem is that with the Congress now over, so is the period of coordinated global growth. Here's why.

As Citi writes, "China’s Party Congress has concluded and Xi Jinping’s position as President has been consolidated. Given there are no standing committee members in their 50s, it suggests there are no apparent heirs for Mr. Xi, opening the door for him to stay on beyond 2022. One of the key questions in the run up to the congress was that once power was consolidated, would China accelerate its economic reforms. We think this is unlikely but do expect a moderation of growth, with data momentum perhaps set to continue to slow at its current pace. Note how China’s MCI tends to lead Citi’s macro data index for China and our MCI is still tightening."

It gets worse.

As Capital Economics writes in its China Activity Monitor note this week, the firm's China Activity Proxy (CAP) suggests that growth in China slowed last month to the weakest pace in a year and with property sales cooling and officials continuing their efforts to rein in financial risks, Cap Econ thinks that looking ahead "the economy will slow further over the coming quarters."

Some more details from CapEco:

The CAP is our attempt to track the pace of growth in China without relying on the official GDP figures. It is based on a set of low-profile indicators chosen to reflect activity across a wide section of the economy.

  • The CAP suggests that, following a sharp rebound in 2016, the economy expanded at a pace not far short of that shown on the official GDP data in the last three quarters. On a monthly basis though, we estimate growth actually peaked in July at 6.6% y/y before slowing to 5.6% last month, the weakest pace in a year. Growth also edged down last month in seasonally adjusted 3m/3m annualised terms, to 5.9% from 6.1% in August.
  • The breakdown reveals that two of the CAP’s five components were responsible for the latest slowdown. Passenger traffic growth fell in September to 1.6% y/y from 4.0% in August, hitting a six-month low. This may be due in part to distortions caused by the shift in timing of Mid-Autumn Festival from September last year to October this year. But even in seasonally-adjusted 3m/3m annualised terms, growth slowed from 4.0% to 3.5% last month.
  • Growth in domestic freight volumes also slowed in September in both y/y and annualised 3m/3m terms, with the latter hitting a three-month low.
  • Property construction growth continued to rebound in September, reaching the fastest pace in almost three years despite the recent contraction in home sales.

CapEco's ominous conclusion:

Looking ahead, we think growth will continue to slow over the coming quarters. The current props to growth appear shaky. With investment contracting in real terms, industrial output will probably soften over the months ahead. Property sales also look set to weaken further as the government’s purchase curbs continue to expand. This will weigh on construction before long. More generally, with tighter monetary conditions weighing on credit growth, activity looks set to weaken further.

That the past 18 months of coordinated global growth will end in China, is quite symmetric: back in January 2016, as global markets were tumbling, aborting the Fed's plans to hike rates 4 times in 2016 and resulting in sharp economic slowdowns around the globe, it was the (still mysterious) Shanghai Accord that "saved" the world, and unleashed a burst of unprecedented, and coordinated, growth... which only cost China some $8 trillion in debt.

It will only make sense that another major Chinese event will mark the top of this economic mini cycle, and lead to the next global downturn, not to mention spike in market volatility.


DemandSider Five Star Fri, 10/27/2017 - 15:31 Permalink

Yes, it''s pretty ironic that those who crow the loudest about the imminent collapse of Communist China have benefitted the most from transferring capital to them. It must be their latent guilt for their treason. Alas, despite their best efforts to talk down Communist China, they will retire in relative comfort, after having sold their own country down their river.

In reply to by Five Star

Justin Case DemandSider Fri, 10/27/2017 - 20:00 Permalink

Just FYI Communist China ended 30 yrs. ago. Welcome to the new world. If China is a communist country, the US could benefit from that type of economy. Lot of the real estate buying in  Cali and Vancover is muti-millionaires from China. Do you recall any other communist regime that produced as many millionaires? NO, siply b/c China is not a communist country, only the leadership is communist. China is socialist, and number 1 in the world.

In reply to by DemandSider

roddy6667 Justin Case Fri, 10/27/2017 - 22:15 Permalink

The retards that talk commie, commie, commie have no idea what sofuckingever what it means. China has not been communist since 1978, not by any definition of the term. "Communist" is a word, and what it represents in China has changed dramatically since Mao died. Coca-Cola used to contain cocaine and cane sugar, and came in a glass bottle. None of that is true now, but we still call it Coca-Cola.The "Communist Party" in China just means "politics". Because it contains the word "party" does mean that it can be compared one-for-one with political parties in a different kind of government. In the making of laws and policies, there are 9 political parties in China. They range from hardcore Maoists who want to turn back the clock to those who want China to be just like America and Europe. All these opinions go into making the path that the country takes, but the Communist Party administers these blended ideas.As far as how this works for the man on the street in China, it works quite well. The overwhelming majority of Chinese have confidence in their leaders and believe they are making the right decisions. In America, support for the president rarely reaches 50% and support for Congress is often single numbers. 

In reply to by Justin Case

LawsofPhysics Fri, 10/27/2017 - 15:24 Permalink

Did anyone really believe that we could have exponential eCONomic growth forever in a biosphere with finite resources?  As far as the Chinese go, they like things just the way they are...

nsurf9 Fri, 10/27/2017 - 16:01 Permalink

Why yes, it could even double that - when your $100 (or Yuan) bill spends like a $50, then like a $20, then like a $10, then like $5, then like a $1.  Infinity and beyond can easily be paled by comparison, when they've distroyed the buying power of the currency to amount to digital pennies.The Chinese have, unlike the US, reaped huge progess with producing real things and at least the Chinese know who owns their central bank! 

Setarcos hoytmonger Sat, 10/28/2017 - 01:51 Permalink

Have you heard about the New Silk Road, One Belt, One Road, the Shanghai Cooperation Council, Russia's Eurasian initiatives, BRICS, integration from Vladivostok to Lisbon, etc.?  Have you heard about a myriad new, mutually beneficial trade agreements, new trade settlements, encouraging diversity and national sovereignty, doing away with the petrodollar and the Anglo-American economic system generally?  Have you heard about the quickly developing ties between China, Russia and Iran especially?  Then there are both old and new ties with Pakistan, India, Afghanistan, Syria, African countries, the Phillipines, etc..How do you work out that all of this, and more, is "isolationist"?  How?One can question whether it will all work, whether or not Washington will allow it to work, whether or not the real PTB, e.g. Rothschild & Co., will opt for WW3 rather than admit defeat, thereby ruining everything for everyone (as per the Samson Option), but what you say makes no sense whatsoever ... it is completely without evidence.

In reply to by hoytmonger

Sudden Debt Fri, 10/27/2017 - 18:25 Permalink

The entire world is broke....the only thing that can restart it all is total destruction.Give it 2 to 3 more years before violence between the superpowers start. 

mendigo Fri, 10/27/2017 - 19:04 Permalink

Its not really additiveIts not that the economy is slowing and they are restraing credit growth.Rather the economy is slowing because they are restraining credit growth. Do they really need to lie to create a negative impressi9n? Should I take that as a bullish indicator or more of a bullshit indicator.I know people will write this bs but I surprised zh doesnt have better.