April was a truly gripping month for Chinese politics. Bo Xilai, the nearest thing in China to a politician running for national office, was purged with a brutality reminiscent of the Mao era he had so enthusiastically invoked. But while the country, and the world, was spellbound by the unfolding political drama, something strange was happening to the economy – nothing at all.
Economic activity in China appears to be running into the ground. In the first quarter, growth slowed to 8.1 per cent as measured officially, and to about 7 per cent on an annualised basis. But in April, things took a sudden turn for the worse. Import growth stalled and this month Chinese customers sought to defer, or even default on, contracts for iron ore and thermal coal. That suggests all is not well in Chinese steel plants, on its building sites or in its factories. Other economic proxies, from electricity output to rail cargo and bank loans, also suggest a sudden screeching of economic breaks. Even official numbers – rightly held in much scepticism – have markedly slowed. Industrial production, fixed-asset investment and retail sales have disappointed one after the other.
The authorities have acknowledged the sudden change. Until recently, Beijing had been trying to damp things down, worried about high inflation (which peaked above 7 per cent) and speculation in the property market, particularly at the luxury end. But in the past few days – with the alacrity with which Scotty used to shift the Starship Enterprise from cruising speed to full thrust ahead – Beijing has cranked up the economic levers.