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Piecing together the pieces of China’s economic puzzle

As Tolstoy once said, all happy families are alike; every unhappy family is unhappy in its own way.

In China, each province has its own tale as the Asian economic giant makes its slow transition toward a consumption-driven economy.  While some of the nation’s regions are streaking ahead, others are caught in the mire.

" The divergence between the ‘old’ and ‘new’ China will continue to widen."
Raymond Yeung, ANZ Chief Economist Greater China

Analysis by ANZ shows just how diverse the economic performance of different Chinese regions was during the first half of 2016 and the regional differences has widened compared with a decade ago.

Shanghai, China’s financial centre, has witnessed a contraction in industrial production. However, solid growth in the services industry has buttressed GDP growth.

In fact, investments in the metropolitan are increasingly tilted towards the services sector, consistent with China’s strive to rebalance its economy.

Leading the western provinces, Chongqing has consistently outperformed other cities in recent years thanks to rapid development of automobile and electronics manufacturing (both national pillar industries) in the city.

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Notably, Liaoning province, which is plagued by overcapacity in the steel industry, continues to underperform and registered negative year-on-year growth of 1 per cent in the first half of 2016.

Similarly Shanxi province, which is a massive coal producer, also grew much slower than its peers.

As the weakness is mainly concentrated in the traditional heavy industries, we believe the Chinese government will employ fiscal policy and reforms (such as tax and structural reforms) to boost growth in these provinces.

We believe while overall growth is expected to slow in the second half of the year, the divergence between the ‘old’ and ‘new’ China will continue to widen. This divergence means China’s economic reform is well underway, and we don't need to take this observation negatively. 

Raymond Yeung is ANZ Chief Economist Greater China

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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