Strong as an ox?

The beast which gives its name to the Chinese new year that begins on January 26th is meant to symbolise prosperity through fortitude and hard work, offering hope that China will soon regain its economic vigour. But an ox is often a castrated bull-which may be an apt description of China's economic pain. New figures show that China's GDP growth fell to 6.8% in the year to the fourth quarter, down from 9% in the third quarter and half its 13% pace in 2007. Growth of 6.8% may still sound pretty robust, but it implies that growth was virtually zero on a seasonally adjusted basis in the fourth quarter.

Industrial production has slowed even more sharply, growing by only 5.7% in the 12 months to December, compared with an 18% pace in late 2007. Thousands of factories have closed and millions of migrant workers have already lost their jobs. But there could be worse to come. Chinese exports are likely to drop further in coming months as world demand shrinks. Qu Hongbin, an economist at HSBC, forecasts that exports in the first quarter could be 19% lower than a year ago. 2009 may well see the first full-year decline in exports in more than a quarter of a century.

Economists have become gloomier about China's prospects, with many now predicting GDP growth of only 5-6% in 2009, the lowest for almost two decades. The most dismal view comes from Albert Edwards, at Société Générale, a French bank, who thinks China may be sliding into outright recession. He points to a fall in electricity output of 6% in the year to the fourth quarter, down from average annual growth of 15% over the previous five years.

In the past, the growth in GDP and electricity use have tended to move together (see chart). Mr Edwards reckons that a decline in electricity output may mean that GDP is falling, no matter what the official figures say. Equally worrying is the OECD's leading indicator of economic activity in China, which has plunged to its lowest level in its 26-year history, lower even than during the slump in 1989, the year of the Tiananmen Square protests and massacre.

This makes for a compelling story. But the relationship between GDP and electricity consumption has been distorted by the uneven nature of this slowdown. Energy-guzzling heavy industries, such as steel and cement, bore the brunt of China's downturn late last year. So it is not surprising that electricity use slumped.