China – further signs of weakening growth

December 3rd, 2018 by Hubert Fromlet, Kalmar

China’s economic growth has been slowing down somewhat during 2018 – also officially. In q3, GDP rose by 6.5 % compared to q3 last year. “Around 6.5 %” is exactly the official objective for 2018 which certainly will be met numerically. Still, 6.5 % reflects some slight reduction of growth rates during 2018 – underlined also by the weakening of the Shanghai Stock Exchange (SSE) Composite Index by around 1000 points until now from more than 3500 in the beginning of 2018.

Most China observers know by now that the quality of Chinese GDP statistics is underperforming. Therefore, it remains striking how many analysts can come to the conclusion that China’s GDP in q3 did not meet expectations of 6.6 %. This is really hairsplitting.

In the meanwhile, some further official statistical indicators have come in. One may, for example, mention:

¤ “Growth rate of investment in fixed assets”:
+5.7 % Jan-Oct 2018 compared to 7.3 % during the same period last year
–> somewhat dampened growth rate

¤ “Total retail sales of consumer goods”:
October 2018 (in value terms): +8.6 % (CPI Oct: +2.5%); Oct 2017: 10.0 % (CPI Oct 2017: 1.9%)
–> somewhat dampened growth rate

¤ “Industrial production operation”:
Oct 2018: +5.9 % in real terms compared to +6.2% in Oct 2017
–> surprisingly limited slowdown.

Indicators to watch also in 2019

Considering further growth indications, I would mainly look in 2019 at the trend of the banks’ cash requirements (further cuts) and speeches by Chairman Xi Jinping and Prime Minister Li Keqiang. A further weakening of the currency RMB – if happening – would point strongly at continuous tough times for Chinese exporters. And – finally – official statistics not to forget. If statistics even officially are on slight downward moves, such developments most probably reflect weakening trends.

Still quite high official growth objective for 2019 expected

GDP growth in 2018 will come in 6.6% – plus/minus 0.1. For 2019, I expect the official objective for GDP growth to be set between 6 ¼ and 6 ½ % or – if more exactly – at one of these range points. The new growth target for 2019 has certainly to be met just one year before the important evaluation year of 2020 for the 100th anniversary of the Communist Party in 2021.

Any deviation from the “planned” GDP-growth range in 2019 would therefore be a surprise!

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

 

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