Published: September 9, 2012
CHENGDU, CHINA — With more than 100 very tall cranes on the skyline, this large metropolis in Sichuan Province looks vibrant at first glance, despite China’s sharp economic slowdown.
Keith Bradsher/The New York Times
Workers left a high-rise residential construction project at the end of the day in Chengdu, China, on Friday.
Keith Bradsher/The New York Times
A high-speed rail bridge under construction on the outskirts of Chengdu. The government is pushing ahead with big public works projects even as residential construction has slowed.
But only a few cranes — those that are building projects backed by the national government, including ahigh-speed rail line — are floodlighted and busy far into the night. Far more numerous are the cranes above skeletons of high-rise buildings; they move less often by day, and are dark and deserted by night.
The pattern among the cranes of Chengdu’s construction sites is evident across China. As summer fades into autumn, Beijing is stepping up investment in a bid to rescue the economy, but consumers, businesses and debt-burdened local governments across the country are showing little interest in spending.
A welter of economic data released Sunday by the National Bureau of Statistics showed the extent of the problems. Investment in new buildings and other fixed assets is in the doldrums. Manufacturers are retreating from ambitious production targets as they struggle with bloated inventories of unsold goods. Even the service sector, still underdeveloped and widely seen by economists as full of potential, is showing signs of distress.
“Business is slow these days — just look around this shopping center, there are so few people walking around,” Zhong Yongping, a beautician in central Chengdu, said Thursday as she woke from an afternoon nap taken while waiting for a customer to show up.
Industrial production grew 8.9 percent in August from a year earlier. That was even slower than economists had expected and was the weakest pace since May 2009, when the global economic downturn was in full swing.
But the real problem, as signaled by the slow-moving cranes at high-rise buildings in Chengdu, lies in fixed-asset investment, previously the mainstay of the Chinese economy.
“Construction is slowing down,” said Zhao Chenzhen, a young electrical worker, as he and others in hard hats left a darkened high-rise construction site in Chengdu early Friday evening.
President Hu Jintao said in a speech Saturday at the Asia-Pacific Economic Cooperation forum in Vladivostok, Russia, that the Chinese economy suffered from a “lack of balance, coordination and sustainability.” He strongly hinted at further economic stimulus, saying, “We will boost domestic demand and maintain steady and robust growth as well as basic price stability.”
Bankers and executives say that, across China, builders and real estate developers have decelerated construction to the slowest, most cash-conserving pace possible without setting off default clauses on their loans by stopping work entirely and sending away the cranes. That slow pace, done in single shifts instead of three shifts around the clock as in the past, also showed up in national data on Sunday.
Fixed-asset investment grew 20.2 percent in the first eight months of this year, compared with the same period last year. It was the second-lowest pace since December 2002 — only May 2012 was lower, and marginally so.
While even 20.2 percent might sound high by international standards, it overstates actual growth by including the replacement of existing factory equipment and buildings that may have worn out, in addition to new investment. The monthly data also include extensive double-counting, which Chinese statisticians eliminate only in more comprehensive annual data.
The August figure for investment growth was weaker than expected even though the central government agencies in Beijing have started spending more money again. Their investment spending rose last month from year-ago levels for the first time in 15 months, the details of official data from Sunday showed, as Beijing started trying to revive the economy.
Central government investment spending had fallen late last year and early this year as the economic stimulus put in place in 2009 wound down. It is the rest of investment spending that has been weak this summer and that remained so in August. Local government investment spending, for example, grew last month at the slowest pace since December 2001 — and local government investment spending in China is 18 times as large as central government investment spending.
Chinese cities borrowed and spent huge sums over the past few years and now find themselves financially stretched. To make matters more difficult, the real estate slowdown has hurt sales of government-owned land, a crucial source of their revenue, as falling prices have made developers reluctant to buy more land and build more buildings.
He Yong, a saleswoman at a luxurious apartment complex slowly being built in Chengdu, sat alone this week in a spacious sales office empty of customers. The apartments sell for $120 to $165 per square foot, or $1,292 to $1,776 per square meter, Ms. He said, but she quickly volunteered that “We are now offering a 10 percent discount, and if you would like further special discounts, you can contact our sales manager.”
Li Hongzhi, a Chengdu real estate broker, said prices had dropped 5 percent from a year ago. But the number of apartments changing hands has fallen much more steeply, often a sign that sellers are wary of accepting even lower offers from buyers.
Mr. Li said the number of completed transactions in the city for already completed apartments had slumped 30 percent in July compared with the previous month, after the national and local government tightened restrictions on real estate speculation in a bid to improve the affordability of housing.
Anecdotal evidence from brokers is often the best guide to real estate prices in China, where the government releases very little data on transactions.
The national government’s own index of real estate prices attracts skepticism from analysts. Beijing statisticians allow local governments to measure prices based on a few old neighborhoods in each city where few transactions take place, so the national index shows fairly stable prices year after year in a wildly gyrating market.
Private surveys of real estate developers tend to reflect price increases accurately during good times, but few developers have been willing to admit their heavy discounting in the past year.
Other economic statistics released Sunday also did not paint a very cheerful picture. Retail sales were up 13.2 percent in August from a year earlier, maintaining the slower pace they have shown through the summer. Producer prices plunged 3.5 percent in August from a year earlier, an even faster decline than expected, as companies accepted ever-lower prices for their goods in the hope of clearing overstuffed warehouses.
Yet for consumers, inflation actually picked up slightly in August, creeping up to 2 percent from 1.8 percent in July, as food prices kept rising. Inflation makes it harder for the government to stimulate the economy without risking a further increase in prices.
Even before the release of the numbers Sunday, some economists were marking down their forecasts for Chinese growth this year and next. Tao Wang, a China economist at UBS, did so on Friday, lowering her forecasts for the third quarter of this year to 7.3 percent and for the fourth quarter to 7 percent — both figures below the government’s target of 7.5 percent for this year.
Ms. Tao also cut her forecast for next year to 7.8 percent, from 8.3 percent.
In addition to weak domestic demand for new apartments and big-ticket purchases like cars, the Chinese economy has suffered from slumping demand for its exports from other markets, particularly Europe. That has contributed to a large buildup in inventories of unsold goods, particularly at manufacturers.
Beijing officials are starting to send signals that they plan to help exporters unload their inventories overseas. They have allowed the renminbi to edge down 1 percent since the end of April against the dollar, the main currency in which China conducts its trade, although the renminbi has appreciated 3.5 percent against the euro since then.
Prime Minister Wen Jiabao said after a tour of export zones in southern China last month that measures should be taken by the end of September to help exports. Citing unidentified sources at the Commerce Ministry, the semiofficial China Daily newspaper reported over the weekend a package of initiatives would be launched in mid-September, including tax rebates, insurance, loans and other measures.
For now, demand is weak across the Chinese economy. “I would say my business is down 15 percent this year,” said Ms. Zhong, the beautician. “Customers are tightening their belts and spending less; they are choosing fewer and cheaper treatments.”
Hilda Wang contributed reporting.