Why Chinese leaders are not really happy with current GDP growth – 6% is not 6%

08:02 by Hubert Fromlet, Kalmar

China’s GDP increased by “only” 6.0 % in q3 (yoy) compared to 6.2 % in q2, the lowest growth rate in nearly three decades. In quite a number of external comments, I could read that China’s political leadership should be contented with the above-mentioned growth rate. However, I can see no reason why.

The point is that 6% in GDP growth today is not always equal with a 6 %- rate at another occasion or somewhere else. Here we come to issue of the quality of economy growth. I would agree with the supposed satisfaction of Chinese leaders if growth had come down in recent quarters as the result of future-oriented reforms of the state-owned enterprises (SoEs) and other kinds of necessary structural downsizing. In this case, we would regard the slower growth as an intended result, some years ago often called “the new normal”.

Weakened GDP growth not due to economic reforms

Instead, China’s latest growth deceleration is caused involuntarily and cannot be seen as the result of structural reforms and confirmation of the planned “new normal”. Instead, the current slowdown seems to be much the result of the trade war with the U.S., the weakening global demand, and the related deterioration of the business sentiment which at some point also started to affect Chinese investments more negatively.

In my view, the dampened growth of Chinese investments should not be related to domestic structural reforms but rather to exogenous factors. This means that the political leaders of China do not like the current rate of GDP growth since it is not the result of their own forward-looking Chinese reform policy. I would not be surprised if the next quarter will show a very limited renewed improvement of the GDP-growth rate, possibly to 6.1 or back to 6.2 %. Such a reversal could be motivated by a number of growth supporting measures regarding taxes, lowered cash requirements for banks in the PBoC and easening conditions for foreign investors on Chinese stock markets.

To summarize: A further weakening of GDP growth below 6 % does not seem to be probable – particularly not for several quarters in a row. Analysts should not forget the importance of nice statistical GDP numbers for the forthcoming evaluation and anniversary events taking place in 2020 and 2021 (see my article in chinaresearch.se from October 16 this year).

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
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