Steel and cement don’t reflect China’s growth story any more

China’s investment in the secondary industry grew by 16.1 percent year-on-year in the first quarter of this year, significantly higher than the 6.8 percent investment growth in the primary industry and 6.4 percent investment growth in the tertiary industry.

In contrast steel and cement production, which has been closely linked to investment in the secondary industry, fell year-on-year, triggering doubts about the authenticity of China’s economic development story. However, such a mismatch actually reflects the profound changes China’s economic structure is undergoing.

In the past, China’s industrial investment was mainly concentrated in the heavy and chemical industries, given the huge demand for steel and cement. Whenever the investment in the secondary industry increased, steel and cement output would increase, and vice versa.

However, ever since China’s economy entered the stage of high-quality development, the investment has shifted toward the high-tech and equipment manufacturing sector, which has lesser demand for steel and cement. That explains the lack of synchrony in the growth rate of the secondary industry and steel and cement production.

As China’s economy shifts from extensive growth based on scale and speed to intensive growth based on quality and efficiency, the correlation between many economic indicators has changed. Therefore, we cannot continue to view and analyze problems using old concepts.

In the past, changes in electricity consumption, railway freight volume and medium- and long-term loans of banks were regarded as an important barometer to observe economic trends. However, with the optimization and upgrading of China’s economic structure, energy demand in the industry and service sector, and the proportion of railway freight volume in the total social logistics volume are also changing. As a result, the relationship between these indicators and the overall economic situation will naturally undergo change. If the changes of individual economic indicators alone are used to judge the overall economy, we may draw wrong conclusions.

Only by deeply clarifying the connotation of various economic indicators and exploring the link between various economic variables, can we make more comprehensive, scientific and rational analysis of China’s economy, and draw more scientific and accurate conclusions about its high-quality development.

Post time: May-13-2022